249315 REA Holdings Cover Spreads.qxp 27/04/2018 12:55 Page 1
R.E.A. HOLDINGS PLC
R.E.A. HOLDINGS PLC
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Annual Report and Accounts
2017
R.E.A. Holdings plc
First Floor
32-36 Great Portland Street
London
W1W 8QX
www.rea.co.uk
Registered number
00671099 (England and Wales)
249315 REA Holdings Cover Spreads.qxp 27/04/2018 12:55 Page 2
R.E.A. Holdings plc (“REA”) is a UK company of which
the shares are admitted to the Official List and to
trading on the main market of the London Stock
Exchange.
The REA group is principally engaged in the cultivation
of oil palms in the province of East Kalimantan in
Indonesia and in the production and sale of crude palm
oil and crude palm kernel oil.
Sterilising cages
Steam turbine
This report has been managed by Perivan Financial Limited. (249315)
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offsetting these emissions by supporting global emission reduction projects that support low carbon
sustainable development.
249315 REA Holdings p01-p41.qxp 27/04/2018 12:56 Page 01
Contents
Overview
Key statistics
Highlights
Officers and advisers
Maps
Chairman’s statement
Strategic report
Introduction and strategic environment
Agricultural operations
Stone and coal operations
Sustainability
Finance
Risks and uncertainties
Governance
Board of directors
Directors’ report
Corporate governance report
Audit committee report
Directors’ remuneration report
Directors’ responsibilities
Auditor’s report
Group financial statements
Income statement
Balance sheet
Statement of comprehensive income
Statement of changes in equity
Cash flow statement
Accounting policies
Notes
Company financial statements
Balance sheet
Statement of changes in equity
Cash flow statement
Accounting policies
Notes
Notice of annual general meeting
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Currency
References to “dollars” and “$” are to the lawful currency of the United States of America.
R.E.A. Holdings plc Annual Report and Accounts 2017
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Overview
Key statistics
2017 2016 2015 2014 2013
Results ($’000)
Revenue 100,241 79,265 90,515 125,865 110,547
Earnings before interest, tax,
depreciation and amortisation 20,051 15,933 15,123 38,797 30,269
(Loss) / profit before tax (21,862) (9,289) (12,245) 23,744 25,216
(Loss) / profit for the year (24,901) (11,308) (12,931) 21,981 12,672
(Loss) / profit attributable to
ordinary shareholders (27,408) (17,800) (20,912) 14,153 5,457
Cash generated by operations 45,816 25,371 37,286 33,053 19,358
Returns per ordinary share
(Loss) / earnings (US cents) (67.0) (48.2) (59.0) 40.3 15.8
Dividend (pence) – – – 7.75 7.25
Land areas (hectares)
Mature oil palm 34,076 31,521 29,367 28,275 27,102
Immature oil palm 10,018 11,325 7,730 6,339 6,960
Planted areas 44,094 42,846 37,097 34,614 34,062
Infrastructure and undeveloped 32,033 27,738 33,487 35,970 36,522
Fully titled 76,127 70,584 70,584 70,584 70,584
Subject to completion of title 34,347 37,631 37,631 37,631 30,043
Total 110,474 108,215 108,215 108,215 100,627
FFB Harvested (tonnes)
Group 530,565 468,371 600,741 631,728 578,785
Third party 114,005 98,052 138,657 149,002 99,348
Total 644,570 566,423 739,398 780,730 678,133
Production (tonnes)
Total FFB processed 630,600 560,957 728,871 774,420 677,389
CPO 143,916 127,697 161,844 169,371 147,649
Palm kernels 29,122 26,371 33,877 35,812 30,741
CPKO 11,052 9,840 12,557 12,610 11,393
CPO extraction rate * 22.8% 22.8% 22.2% 21.9% 21.8%
Yields (tonnes per mature hectare)
FFB 15.6 14.9 20.5 22.3 21.4
CPO 3.6 3.4 4.5 4.9 4.6
CPKO 0.3 0.3 0.3 0.4 0.4
Average exchange rates
Indonesian rupiah to US dollar 13,400 13,369 13,377 11,908 10,494
US dollar to sterling 1.29 1.36 1.53 1.65 1.57
* The group cannot separately determine extraction rates for its own FFB and for third party FFB. CPO extraction rate and CPO and
CPKO yields are therefore calculated applying uniform extraction rates across all FFB processed.
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Overview
Highlights
Overview
Sale of subsidiary
• Production and revenue saw a progressive improvement
in 2017, which is continuing into 2018
• Significant plantation disposal recently announced
• Agreement reached on 25 April 2018 for sale of REA
Kaltim’s 95 per cent shareholding in PBJ to Kuala
Lumpur Kepong Berhad; proceeds estimated at
$85 million gross or approximately $57 million net of
external debt repayments and selling expenses
Financial
• Revenue up 26 per cent to $100.2 million (2016:
$79.3 million) reflecting initial impact of operational
improvements to restore yields to historic norms
• Cost of sales increased to $86.3 million (2016:
• Divestment serves to benefit capital structure by
reducing indebtedness and by relieving the group of the
further investment that would be required to take the
PBJ estates to full maturity; it will also defer for at least
three years the need for a further group oil mill
$71.8 million) primarily due to expenditure on
rehabilitation of the mature estates and increased cost
and volume of third party fruit purchases
• No material negative impact on group’s immediate profit
outlook as the majority of the plantings at PBJ are
immature
• Pre-tax losses of $21.9 million (2016: $9.3 million),
Stone and coal operations
mainly due to increase in the value of the group’s sterling
notes arising from exchange fluctuations, resulting in a
charge of $4.8 million in 2017 (2016: credit of $10.5)
• Balance of 2017 dollar notes ($20.2 million) and 2017
sterling notes (£8.0 million) repaid
• Sale of 2022 dollar notes held in treasury and placing of
• Plans to reopen coal concession at Kota Bangun
progressed with conclusion of arrangements to acquire
loading point and conveyor with permitting now in hand
to allow mining operations to recommence
• Limestone quarry operations commenced
preference shares together raising $18.0 million
• Discussions regarding the development of the andesite
Agricultural operations
• Increased production of 530,565 tonnes of FFB, up
stone concession continuing
Organisational changes
13 per cent (2016: 468,371 tonnes), benefiting from
improvements in harvesting, infrastructure and field
management practices
• Appointment of Carol Gysin as group managing director
in February 2017 and several senior management
changes implemented
• Increase in third party FFB purchased to 114,005 tonnes
• Completion of relocation of Indonesian administrative
(2016: 98,052 tonnes)
offices to a single location in Balikpapan
• Consistently improved CPO extraction rates averaging
Outlook
23 per cent
• 1,248 hectares of extension planting
• The recovery seen in 2017 anticipated to strengthen
further in 2018 with crop levels and yields returning
closer to historic norms
• FFB for the four months to April 2018 expected to be
around 200,000 (2017: 159,706)
• Divestment of PBJ to enable group to concentrate
operations on the remaining plantation areas in near
contiguous locations
• Coal activities expected to provide cash flows going
forward
R.E.A. Holdings plc Annual Report and Accounts 2017
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Overview
Officers and advisers
Directors
D J Blackett
I Chia
C E Gysin
J C Oakley
R M Robinow
M A St. Clair-George
Secretary and registered office
R.E.A. Services Limited
First Floor
32-36 Great Portland Street
London W1W 8QX
Stockbrokers
Mirabaud Securities LLP
10 Bressenden Place
London SW1E 5DH
Solicitors
Ashurst LLP
Broadwalk House
5 Appold Street
London EC2A 2HA
Auditor
Deloitte LLP
Hill House
1 Little New Street
London EC4A 3TR
Registrars and transfer office
Link Asset Services
The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
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Overview
Maps
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The smaller map shows the location of the group’s operations within the context of South East Asia. The
larger map provides a plan of the operational areas and of the river system by which access is obtained to the
main areas.
Key
Companies
Methane capture plant
Oil mill
Stone source
Coal concession
Tank storage
PT Putra Bongan Jaya
CDM PT Cipta Davia Mandiri
KKS PT Kartanegara Kumalasakti
KMS PT Kutai Mitra Sejahtera
PBJ
PBJ2 PT Persada Bangun Jaya
REAK PT REA Kaltim Plantations
SYB PT Sasana Yudha Bhakti
PU
PT Prasetia Utama
SYB SYB land transfer
R.E.A. Holdings plc Annual Report and Accounts 2017
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Overview
Chairman’s statement
2017 saw the beginnings of a much needed recovery in the
group’s operations. Following changes to staffing and staff
responsibilities in both estates and mills and with the estates
beginning to benefit from the enhanced fertiliser programmes
initiated in 2016, harvesting, field management practices, mill
efficiency and road maintenance all progressively improved
over the course of the year.
Total revenue for the year increased to $100.2 million from
$79.3 million in 2016. Operating losses were reduced to
$2.2 million compared with $5.0 million in 2016. Although the
loss before tax increased to $21.9 million compared with
$9.3 million for 2016, this was principally the result of a
negative swing from year to year of $15.3 million in mark to
market movements on the group’s foreign currency liabilities,
with a charge to profits of $4.8 million in 2017 compared with
a credit of $10.5 million in 2016. In addition, and as previously
reported, a one off charge of $1.1 million was incurred in
2017 as a result of staff changes arising from the
reorganisation of the group’s Indonesian offices. By contrast,
the results for 2016 benefited from a one off receipt of
$1.1 million received in respect of tax refunds.
Fresh fruit bunches (“FFB”) harvested increased by 13 per cent
in 2017 to some 530,000 tonnes, compared with 468,000
tonnes in 2016. This reflected an 8 per cent increase in mature
estate hectarage and an improvement in FFB yields to
15.6 tonnes per mature hectare in 2017 from 14.9 tonnes in
2016. There was a similar increase in the volume of purchases
of FFB from smallholders and other third parties: 114,000
tonnes in 2017 compared with 98,000 tonnes in the previous
year. Crude palm oil (“CPO”) production in 2017 totalled
144,000 tonnes, compared with 128,000 tonnes in 2016, with
CPO extraction in the latter part of 2017 running at consistently
higher average rates than in 2016 and the early months of
2017. The better performance reflected recent mill
refurbishment works, a rigorous maintenance programme, as
well as an improvement in the quality of FFB being processed.
CPO and crude palm kernel oil (“CPKO”) yields of, respectively,
3.6 and 0.3 tonnes per mature hectare were achieved during
2017 compared with, respectively, 3.4 tonnes and 0.3 tonnes
per hectare in 2016.
The CPO price, CIF Rotterdam, had a strong start to the year
rising from $790 per tonne at the beginning of January to a
high of $857 per tonne on the back of generally lower
production before declining to a low of $640 per tonne
reflecting increasing stock levels and expectations of
significant production growth in the second half of the year.
The price closed at the end of the year at $670 per tonne and
has traded in the range $640 to $710 per tonne in 2018 to
date. Prices are currently at $640 per tonne. Consumption
growth and weaker soybean production in South America
appears likely to support prices around these levels.
Progress with development of both PT Putra Bongan Jaya
(“PBJ”) and PT Cipta Davia Mandiri (“CDM”) was slower than
expected in 2017. Weather conditions throughout the year
hampered extension planting in PBJ and a review of the
programme for CDM resulted in a decision to cancel planting
of some 1,000 hectares that had been originally planned so as
to concentrate on larger, near contiguous blocks as well as to
reconsider the status of the conservation reserves. Planting in
PBJ and CDM combined amounted to some 1,161 hectares
in 2017, with the balance of the targeted 3,000 hectares
carried over to 2018.
Plans to reopen the group’s coal concession at Kota Bangun
were progressed during 2017 leading to the conclusion by the
group, in April 2018, of arrangements to acquire an
established loading point on the Mahakam River, together with
a coal conveyor that crosses the group’s concession and runs
to the loading point. This acquisition is an essential
prerequisite to efficient evacuation of coal from the Kota
Bangun concession. With it concluded, the group is applying
for the requisite permits to recommence mining operations
and to sell the previously mined coal currently held in
stockpile. Discussions regarding the development of the
group’s andesite stone concession continue.
The group further addressed its funding arrangements during
2017, raising monies from the sale of the $7.2 million of 2022
dollar notes held in treasury, the issue of 8.4 million new £1
cumulative preference shares and the completion of the
arrangements agreed with the group’s new local partner in
2016. In addition, revolving working capital facilities were
rolled over for a further 12 months at the end of July 2017.
All of the outstanding $20.2 million of 2017 dollar notes and
the outstanding £8.0 million of 2017 sterling notes were
repaid in June and December 2017 respectively.
Further to the statement in the group’s half yearly report
published in September 2017 regarding a potential
divestment of certain outlying plantation assets, the group
reached an agreement on 25 April 2018 for the sale of its
PBJ subsidiary. Completion of the sale, which is subject to
shareholder approval, is expected to take place later in 2018
and will result in group indebtedness being reduced by the
bank borrowings in PBJ and a cash inflow to the group
provisionally estimated at $57 million. The PBJ estate is
located some distance from the group’s principal estates and
would, in the near future, have required the construction of a
new mill and other infrastructure for harvesting and
processing crop. Divestment of PBJ will therefore both
reduce the funding required for the group’s immediate
development programme and permit the group’s management
to focus on a geographically more compact area of operations.
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The proceeds from the divestment of PBJ will principally be
applied in reducing group indebtedness. Coupled with the
funding actions taken over the last two years, this divestment
leaves the group in a stronger financial position. It will permit
the group to operate with significantly reduced indebtedness
and, at the same time, to proceed quickly to develop suitable
areas of its remaining undeveloped land bank. Following the
completion in 2017 of the agreements for the transfer to SYB
of fully titled land areas held by PU, the remaining developable
land bank following the sale of PBJ is currently estimated at
about 10,000 hectares. The immediate impact on production
of the sale of PBJ will be immaterial as the majority of this
estate is not yet mature.
In view of the results for 2017, the directors have concluded
that they should not declare or recommend the payment of
any ordinary dividend in respect of the year.
The recovery in group operations that began in 2017 has
continued into 2018, with production in March demonstrating
a noticeable upturn, against a background of generally poorer
cropping in East Kalimantan. The positive trend has continued
into April, with daily cropping rates suggesting an FFB crop for
the month approaching 60,000 tonnes (2016: 32,070 tonnes).
Higher production combined with increases in mill efficiency
should result in further progress in the group’s operational
performance during the current year.
The improvements to the group’s balance sheet that will follow
from the divestment of PBJ and a resumption of coal
revenues should help the group accelerate development of its
land bank. With CPO prices expected to remain around
current levels, the prospects for the group are more
encouraging than they have been for some years.
DAVID J BLACKETT
Chairman
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Strategic report
Introduction and strategic environment
Introduction
Business model and resources
This strategic report has been prepared to provide holders of
the company’s shares with information that complements the
accompanying financial statements. Such information is
intended to help shareholders in understanding the group’s
business and strategic objectives and thereby assist them in
assessing how the directors have performed their duty of
promoting the success of the company.
This report should not be relied upon by any persons other
than shareholders or for any purposes other than those stated.
The report contains forward-looking statements, which have
been included by the directors in good faith based on the
information available to them up to the time of their approval
of this report. Such statements should be treated with caution
given the uncertainties inherent in any prognosis regarding the
future and the economic and business risks to which the
group’s operations are exposed.
In preparing this report, the directors have complied with
section 414C of the Companies Act 2006. The report has
been prepared for the group as a whole and therefore gives
emphasis to those matters that are significant to the company
and its subsidiaries when taken together.
The report is divided into the following sections:
•
•
•
•
•
•
Introduction and strategic environment
Agricultural operations
Stone and coal operations
Sustainability
Finance
Risks and uncertainties
The balance of this first section discusses the group’s
business model and resources, its objectives and strategy for
achieving these, the market context in which the group
operates and the quantitative indicators that the directors
consider relevant to assessment of the group’s performance.
The sections on “Agricultural operations” and “Stone and coal
operations” review the current status of and trends within the
group’s activities and the group’s plans for their further
development. “Sustainability” deals with environmental and
social issues facing the group while “Finance” provides
explanations regarding amounts disclosed in the financial
statements, the group’s financial resources and its ability to
fund its declared strategies. “Risks and uncertainties” itemises
those risks and uncertainties currently faced by the group that
the directors consider to be material.
The group is principally engaged in the cultivation of oil palms
in the province of East Kalimantan in Indonesia and in the
production and sale of crude palm oil (“CPO”) and crude palm
kernel oil (“CPKO”). Ancillary to these activities, the group
generates renewable energy from its methane capture plants
to provide power for its own operations and also for sale to
local villages via the Indonesian state electricity company
(“PLN”).
The group also holds interests in respect of two stone
deposits and two coal mining concessions, all of which are
located in East Kalimantan. Detailed descriptions of the
group’s oil palm and related activities and of its stone and coal
interests are provided under, respectively, “Agricultural
operations” and “Stone and coal operations” below.
The group and predecessor businesses have been involved for
over one hundred years in the operation of agricultural estates
growing a variety of crops in developing countries in South
East Asia and elsewhere. Today, the group sees itself as
marrying developed world capital and Indonesian opportunity
by offering investors in, and lenders to, the company the
transparency of a company listed on a stock exchange of
international standing while using capital raised by the
company (or with the company’s support) to develop natural
resource based operations in Indonesia from which the group
believes good returns can be achieved.
The knowledge and expertise gained from the group’s long
involvement in the plantation industry represent significant
intangible resources that underpin the group’s credibility. This
is important when sourcing capital, working closely with the
Indonesian authorities in relation to project development and
recruiting a high calibre experienced management team
familiar with Indonesian regulatory processes and social
customs and committed to sustainable practices. Other
resources important to the group are its established base of
operations, large, and near contiguous, land concessions, and
a trained workforce with strong links to the local community.
Objectives and general strategy
The group’s objectives are both to provide attractive overall
returns to investors in the shares and other securities of the
company from the operation and expansion of the group’s
existing businesses and to foster social and economic
progress in the localities of the group’s activities, while
maintaining high standards of sustainability. Achieving these
objectives is dependent upon, among other things, the group’s
ability to generate operating profits sufficient to enable the
group to realise its ambitions.
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CPO and CPKO are primary commodities that, as such, are
sold at prices determined by world supply and demand. Such
prices fluctuate in ways that are difficult to predict and that the
group cannot control. The group’s operational strategy is
therefore to concentrate on minimising unit production costs,
without compromising on quality or its objectives as respects
sustainable practices, with the expectation that, as a lower
cost producer, the group will have greater resilience in any
downturn in prices than competitor producers.
In the agricultural operations, the group adopts a two-pronged
approach in seeking production cost efficiencies. First, the
group aims to capitalise on its available resources by
developing its land bank as rapidly as logistical, financial and
regulatory constraints permit while utilising the group’s
existing agricultural management capacity to manage the
resultant larger business. Secondly, the group strives
continually to improve the productivity and efficiency of its
established agricultural operations.
The stone and coal mining interests represent group
diversifications. The directors believe that quarrying of the
group’s stone deposits will improve the durability of
infrastructure in its agricultural operations and in due course
could also provide useful additional revenue from the sale of
stone to third parties. Following a decision in 2012 to limit
further capital committed to the coal mining interests, the
group’s strategy for these interests is to maximise the recovery
of capital already invested.
The group’s financial strategy is to enhance returns to equity
investors in the company by procuring that a prudent
proportion of the group’s funding requirements is met with
prior ranking capital in the form of fixed return permanent
preferred capital and debt with a maturity profile appropriate to
the group’s projected future cash flows.
The group recognises that its agricultural operations, of which
the total assets at 31 December 2017 represented some
92 per cent of the group’s total assets and which, in 2017,
contributed substantially all of the group’s revenue, lie within a
single locality and rely on a single crop. This permits
significant economies of scale but brings with it some risks.
Whilst further diversification would afford the group some
offset against these risks, the directors believe that, for the
foreseeable future, the interests of the group and its
shareholders will be best served by growing and developing
the existing operations. They therefore have no plans for
further diversification.
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Future direction
An Indonesian plantation law enacted in October 2014,
confirming a 100,000 hectare limit on licensed development
of oil palms for entities that are not listed and not under
majority local ownership, should not impact the group in the
foreseeable future as the group has significant headroom for
development within this limit. The conditional sale of PT Putra
Bongan Jaya (“PBJ”) as discussed below means that the
likelihood of such a limit being of consequence to the group is
more remote.
However, the continuing growth of the Indonesian economy
and a gradual shift in Indonesian political opinion towards
encouraging and potentially mandating increased local
ownership of Indonesian oil palm operations has reinforced
the directors’ long-held view on the desirability of increasing
Indonesian participation in the ownership of the group’s
agricultural operations. To this end, in 2016 the directors
concluded a transaction with a strategic investor in the group’s
principal operating subsidiary, PT REA Kaltim Plantations
(“REA Kaltim”) whereby subsidiary companies of PT Dharma
Satya Nusantara Tbk ("DSN"), acquired, by a combination of
subscription for new shares and the acquisition of existing
shares, a 15 per cent equity interest in REA Kaltim.
DSN is an Indonesian natural resources company listed on the
Indonesia Stock Exchange in Jakarta and engaged in the
business of oil palm plantations and wood products, with
plantation estates based in East, Central and West Kalimantan.
Through its association with DSN the group benefits from
exchanges of information on agronomic and related practices
and there may be scope in due course for more efficient
sourcing of supplies and marketing of produce.
The group has acknowledged that DSN may increase its
participation in REA Kaltim to an eventual level of 49 per cent
by gradual stages over a period of five years, but on the basis
that each increase will be subject to agreement of the price
and other terms at the time of such increase and to the receipt
of all necessary consents and approvals, including the
approval of the company’s shareholders to the extent required.
On 25 April 2018 REA Kaltim entered into a conditional
agreement for the sale of REA Kaltim’s 95 per cent interest in
PBJ to Kuala Lumpur Kepong Berhad (“KLK”). The disposal
enables the group to release the intrinsic value that has built
up in developing PBJ, which, as a recently planted property,
has excellent potential but is not currently profitable. The
divestment will benefit the group’s capital structure by
reducing indebtedness, by relieving the group of the further
investment that would be required to take the PBJ estates to
full maturity and will also defer for at least three years the
need for a further group oil mill. Further, the divestment will
permit the group to focus its efforts on its remaining plantings
which are concentrated within a single geographical area.
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Strategic report
Introduction and strategic environment
continued
The vegetable oil market context
According to Oil World, worldwide consumption of the 17
major vegetable and animal oils and fats increased by 3 per
cent to 214 million tonnes in the year to 30 September 2017
(of which vegetable oils represented 160 million tonnes).
World production of the same group of vegetable oils and fats
during the same period was 215 million tonnes with vegetable
oils accounting for 161 million tonnes of which CPO
represented 65 million tonnes (some 30 per cent of the total).
Total vegetable oil production is currently forecast by Oil World
to rise by 3 per cent in 2018 to 222 million tonnes, driven
principally by a recovery in CPO production following the
2015-2016 El Niño, and increased production of soybean oil.
Total CPO production is projected to account for
approximately 69 million tonnes of the total.
Vegetable and animal oils and fats have conventionally been
used principally for the production of cooking oil, margarine
and soap. Consumption of these basic commodities
correlates with population growth and, in less developed areas,
with per capita incomes and thus economic growth. Demand
is therefore driven by the increasing world population and
economic growth in the key markets of China and India.
Vegetable and animal oils and fats can also be used to provide
biofuels and, in particular, biodiesel.
The principal competitors of CPO are the oils from the annual
oilseed crops, the most significant of which are soybean,
oilseed rape and sunflower. Because these oilseeds are sown
annually, their production can be rapidly adjusted to meet
prevailing economic circumstances with high vegetable oil
prices encouraging increased planting and low prices
producing a converse effect. Accordingly, in the absence of
special factors, pricing within the vegetable oil and fat complex
can be expected to oscillate about a mean at which adequate
returns are obtained from growing the annual oilseed crops.
Since the oil yield per hectare from oil palms (at up to seven
tonnes) is much greater than that of the principal annual
oilseeds (less than one tonne), CPO can be produced more
economically than the principal competitor oils and this
provides CPO with a natural competitive advantage within the
vegetable oil and animal fat complex. Within vegetable oil
markets, CPO should also continue to benefit from health
concerns in relation to trans-fatty acids. Such acids are
formed when vegetable oils are artificially hardened by partial
hydrogenation. Poly-unsaturated oils, such as soybean oil,
rape oil and sunflower oil, require partial hydrogenation before
they can be used for shortening and other solid fat
applications but CPO does not.
The directors believe that demand for, supply of and
consequent pricing of, vegetable and animal oils and fats will
ultimately be driven by fundamental market factors. However,
they also recognise that normal market mechanisms can be
affected by government intervention. It has long been the
case that some areas (such as the EU) have provided
subsidies to encourage the growing of oilseeds and that such
subsidies have distorted the natural economics of producing
oilseed crops. There have also been actions by governments
attempting to reduce dependence on fossil fuels. These have
included steps to enforce mandatory blending of biofuel as a
fixed minimum percentage of all fuels and subsidies to
support the cultivation of crops capable of being used to
produce biofuel.
In recent years, biofuel has become an important factor in the
vegetable oil markets. According to Oil World, biofuel
production in the year to 30 September 2017 accounted for
some 15 per cent of global vegetable oil consumption. There
is substantial evidence that over a period of several years
there has been a correlation between vegetable oil and
petroleum oil prices but, following the sharp decline in
petroleum oil prices during 2015, it appears that the
correlation has, for the time being at least, been broken.
There are probably two principal reasons for this: the
continuing growth in food consumption of vegetable oils and
the fact that not all conversion of vegetable oils to biofuels is
dependent upon market factors. An increasing element of
biofuel use reflects government mandates. In Indonesia, for
example, a levy on exports of CPO of $50 per tonne
introduced in July 2015 is being used to subsidise biodiesel
production and is leading to increasing amounts of CPO being
converted to biodiesel for internal consumption. The resultant
effect is that the economics of producing biodiesel (which,
subsidies apart, are dependent upon the price of competing
petroleum based diesel) are not currently the determinant of
vegetable oil prices so that those prices no longer correlate
with energy prices. This situation would, of course, change
should petroleum oil prices recover materially from present
levels and restore the economics of manufacturing
unsubsidised biodiesel.
A graph of CIF Rotterdam spot CPO prices for the last ten
years, as derived from prices published by Oil World, is shown
on the adjacent page. The monthly average price over the ten
years has moved between a high of $1,292 per tonne and a
low of $488 per tonne. The monthly average price over the
ten years as a whole has been $837 per tonne.
The CPO price, CIF Rotterdam, had a strong start to 2017
rising from $790 per tonne at the beginning of January to
$857 per tonne by the middle of the month on the back of
generally lower production. Thereafter, with stock levels
increasing and expectations of significant production growth
in the second half of the year, the price declined, reaching a
low point of $645 at the end of June and ending the year at
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Crude palm oil monthly average price
1400
1200
1000
800
600
400
200
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
$670. Prices are currently at $640 per tonne and
expectations are that they will at least remain stable at, and
might appreciate slightly above, this level over the period to
the end of 2018. These expectations reflect projections that
further growth in CPO production will be offset by reduced
production of soybeans in South America and continuing
consumption growth in China and India. Whilst the
introduction by China of a new tariff on US soybeans may
result in some adjustments within soybean markets, it seems
unlikely materially to change worldwide consumption of
vegetable oils.
The Indonesian context
2017 was another steady year for the Indonesian economy,
under the helm of President Joko Widodo (“Jokowi”). With a
GDP growth rate for the year of 5.1 per cent (2016: 5.0 per
cent) Indonesia was again one of the best performing
countries in the South East Asian region behind India and
China. Growth was largely driven by the many nationwide
infrastructure projects that are now showing tangible progress,
as well as the gradual recovery in global commodity prices in
the second half of 2017, although offset by some slowdown in
domestic consumption.
The official inflation rate was reported as 3.6 per cent (2016:
3.0 per cent) although real inflation, particularly in the outer
islands, was undoubtedly higher as evidenced by an average
8.7 per cent increase in the minimum wage, effective from 1
January 2018, in the three Regencies in which the group
operates in East Kalimantan.
The Indonesian rupiah opened 2017 at Rp 13,436 = $1 and
closed the year at Rp 13,548 = $1, although for most of the
year it traded around the level of Rp 13,300 = $1. The early
months of 2018 have seen some weakening in the rate to a
current level of Rp 13,880 = $1.
These positive macro-economic indicators and the many
highly visible major infrastructure projects underline the
progress that the government of President Jokowi has made
on delivering on key election pledges of reduced
unemployment, increased infrastructure investment and
structural reform. With the next national and Presidential
elections set to take place in 2019, Jokowi, as the Presidential
candidate nominated by the Partai Demokrasi Indonesia
R.E.A. Holdings plc Annual Report and Accounts 2017
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Strategic report
Introduction and strategic environment
continued
Perjuangan (PDIP) coalition under the leadership of Megawati
Soekarnoputri, is well placed to secure re-election with a
strong mandate.
In East Kalimantan, the local economy has been boosted by
the recovery of coal prices which have allowed many small
mines to recommence operations. However, the oil palm
sector continued to feel the impact of the 2015-2016 El Niño
in 2017 with many estates seeing production in the second
half of the year well below production levels experienced in
the first half.
The term of the existing Governor of East Kalimantan will
expire in December 2018. The first round of voting in the
election of a new Governor will be held in June 2018.
Following the withdrawal of the Regent of Kutai Kartanegara,
who was the previous front runner, the 2018 race is now open
with four pairings cleared to run.
Throughout 2017, Indonesia continued to apply its previously
established sliding scales of duty on exports of CPO and
CPKO. Under these scales, no export duty is payable when
the price of CPO, CIF Rotterdam, falls below approximately
$750 per tonne. However, the flat rate export levy of $50 per
tonne (used to subsidise bio fuel prices and replanting by
small holders) is applied to all export sales of CPO and CPKO
regardless of selling price.
Evaluation of performance
In seeking to meet its expansion, efficiency and sustainability
objectives, the group sets operating standards and targets for
most aspects of its activities and regularly monitors
performance against those standards and targets. For many
aspects of the group’s activities, there is no single standard or
target that, in isolation from other standards and targets, can
be taken as providing an accurate continuing indicator of
progress. In these cases, a collection of measures has to be
evaluated and a qualitative conclusion reached.
The directors do, however, rely on regular reporting of certain
key performance indicators that are comparable from one year
to the next, in addition to monitoring the key components of
the group’s profit and loss account and balance sheet. These
performance indicators are summarised in the table below.
Quantifications of the indicators for 2017 with, where
available, comparative figures for 2016 are provided in the
succeeding sections of this report, with each category of
indicators being covered in the corresponding section of the
report.
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Performance indicator
Agricultural operations
New extension area planted
Crop of fresh fruit bunches
(“FFB”) harvested
Measurement
Purpose
The area in hectares of new land
planted out during the applicable
period
The weight in tonnes of FFB delivered
to oil mills from the group’s estates
during the applicable period
CPO extraction
rate achieved
The percentage by weight of CPO
extracted from FFB processed
Palm kernel extraction
rate achieved
The percentage by weight of palm
kernels extracted from FFB processed
CPKO extraction
rate achieved
The percentage by weight of CPKO
extracted from palm kernels crushed
To measure performance against the
group’s expansion objective
To measure field efficiency and assess
the extent to which the group is
achieving its objective of maximising
output from its operations
To measure mill efficiency and assess
the extent to which the group is
achieving its objective of maximising
output from its operations
To measure mill efficiency and assess
the extent to which the group is
achieving its objective of maximising
output from its operations
To measure mill efficiency and assess
the extent to which the group is
achieving its objective of maximising
output from its operations
Stone and coal operations
Stone or coal produced
Sustainability
Work related fatalities
Smallholder percentage
Greenhouse gas emissions
per tonne of CPO and
per planted hectare
Finance
Return on adjusted equity
Net debt to total equity
The weight in tonnes of stone or coal
extracted from each applicable
concession during the applicable period
To measure production efficiency and
assess the extent to which the group is
achieving its objective of maximising
output from its operations
Number of work related fatalities during
the applicable period
To measure the efficacy of the group’s
health and safety policies
The area of associated smallholder
plantings expressed as a percentage of
the planted area of the group’s estates
To measure performance against the
group’s smallholder expansion objective
Greenhouse gas emissions measured in
tonnes of CO2 equivalent divided,
respectively, by the weight of CPO
extracted from FFB processed and by
the number of group planted hectares
supplying the group mills
Profit before tax for the period less
amounts attributable to preferred capital
expressed as a percentage of average
total equity (less preferred capital) for
the period
Borrowings and other indebtedness
(other than intra group indebtedness)
less cash and cash equivalents
expressed as a percentage of total equity
To measure the intensity of the group’s
greenhouse gas emissions
To measure the group’s financial
performance
To assess the risks of the group’s capital
structure
R.E.A. Holdings plc Annual Report and Accounts 2017
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Strategic report
Agricultural operations
Structure
Land areas
All of the group’s agricultural operations are located in East
Kalimantan and have been established pursuant to an
understanding dating from 1991 whereby the East
Kalimantan authorities undertook to support the group in
acquiring, for its own account and in cooperation with local
interests, substantial areas of land in East Kalimantan for
planting with oil palms.
The oldest planted areas, which represent the core of the
group’s agricultural operations, are owned through REA Kaltim
in which a group company holds an 85 per cent interest. With
the REA Kaltim land areas approaching full utilisation, over the
four-year period from 2005 to 2008 the company established
or acquired five additional Indonesian subsidiaries, each
potentially bringing with it a substantial allocation of land in
the vicinity of the REA Kaltim estates.
Each of these five subsidiaries is currently owned as to 95 per
cent by REA Kaltim and 5 per cent by Indonesian local
investors. Two more recently acquired subsidiaries, PBJ2
(acquired in 2012) and PU (acquired in 2017), are similarly
owned.
A diagram showing the structure of the REA Kaltim sub-group
is set out below.
The operations of REA Kaltim are located some 140
kilometres north west of Samarinda, the capital of East
Kalimantan, and lie either side of the Belayan river, a tributary
of the Mahakam, one of the major river systems of South East
Asia. The SYB area is contiguous with the REA Kaltim areas
and together these form a single site falling within the Kutai
Kartanegara regency of East Kalimantan. The PBJ area,
which is now subject to divestment, sits some 70 kilometres to
the south of the REA Kaltim areas in the West Kutai regency
of East Kalimantan while the CDM, KMS and KKS areas are
located in close proximity to each other in the East Kutai
regency of East Kalimantan less than 30 kilometres to the
east of the REA Kaltim areas. A strip of land previously held
by PBJ2 and bordering the PBJ land areas was reallocated to
PBJ during 2017. The balance of the PBJ2 land is adjacent
to the land areas held by REA Kaltim and SYB.
The REA Kaltim and adjacent areas are most readily accessed
by river. In 2015, a new road was constructed between
Tabang (a town to the north of the REA Kaltim estates) and
Kota Bangun connecting via a bridge over the Mahakam River
with an existing road from Kota Bangun to Samarinda (the
capital of East Kalimantan). This new road passes through the
REA Kaltim estates and potentially provides the group with
alternative transport options which can be of value when
excessively dry periods affect river access. However, the very
heavy rains of the past two years have damaged the new road
so that until the road is resurfaced its value as an alternative
transport route is limited. A bridge across the Senyiur River
links REA Kaltim and the KMS, CDM and KKS areas. The
PBJ area is easily accessible by road.
REA Kaltim sub-group
PT REA Kaltim
Plantations
REA Kaltim
PT Cipta Davia
Mandiri
CDM
PT Kartanegara
Kumala Sakti
KKS
PT Kutai Mitra
Sejahtera
KMS
PT Putra
Bongan Jaya
PBJ
PT Sasana
Yudha Bhakti
SYB
PT Persada
Bangun Jaya
PBJ2
PT Pr(cid:66)(cid:84)(cid:70)(cid:85)(cid:74)(cid:66)
(cid:54)(cid:85)(cid:66)(cid:78)(cid:66)
P(cid:54)
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Although the 1991 understanding established a basis for the
provision of land for development by, or in cooperation with,
the group, all applications to develop previously undeveloped
land areas have to be agreed by the Indonesian Ministry of
Forestry and have to go through a titling and permit process.
This process begins with the grant of an allocation of
Indonesian state land by the Indonesian local authority
responsible for administering the land area to which the
allocation relates (an “izin lokasi”). Allocations are normally
valid for periods of between one and three years but may be
extended if steps have been taken to obtain full titles.
After a land allocation has been obtained (either by direct
grant from the applicable local authority or by acquisition from
the original recipient of the allocation or a previous assignee),
the progression to full title involves environmental and other
assessments to delineate those areas within the allocation
that are suitable for development, settlement of compensation
claims from local communities and other necessary legal
procedures that vary from case to case. The titling process is
then completed by a cadastral survey (during which boundary
markers are inserted) and the issue of a formal registered land
title certificate (an “hak guna usaha” or “HGU”). Separately,
central government and local authority permits are required for
the development of land. These permits are often issued in
stages.
During 2017, the overall area of the group’s fully titled
agricultural land increased from 70,584 hectares to 76,127
hectares following completion of the transfer to SYB and a
local minority shareholder of PU shares the subject of
exchange arrangements agreed in 2015 with PT Ade Putra
Tanrajeng (“APT”). PU holds fully titled land areas of 9,097
hectares located on the southern side of the Belayan River
opposite the SYB northern areas and is linked by a
government road to the southern REA Kaltim areas. By way
of exchange, SYB has agreed to transfer to APT 3,554
hectares of fully titled SYB land and has relinquished 2,212
hectares of untitled land allocations, both areas being the
subject of overlapping mineral rights held by APT. Pending
completion of the transfer of the 3,554 hectares, APT and its
associates have been granted access to commence mining in
this area.
In addition, at 31 December 2017, the group held and can
potentially renew land allocations totalling 34,347 hectares.
A provisional allocation of 12,050 hectares made many years
ago to KKS was conditional upon rezoning of the area
concerned. There is some doubt as to the success of such
rezoning and parts of the area have become the subject of
mining licences. Accordingly, the group is reviewing its
options in respect of this area.
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Details of the land areas held by the group as at 31 December
2017 are set out below:
Land areas Hectares
Fully titled land
CDM 9,784
KMS 7,321
PBJ* 11,602
PU 9,097
REA Kaltim 30,106
SYB 8,217
76,127
Land subject to completion of titling
CDM 5,454
KKS (area adjacent to CDM) 5,150
KKS (provisional allocation) 12,050
KMS 1,964
PBJ* 4,460
PBJ2 5,269
34,347
*As noted under “Future direction” above, on 25 April 2018 the company entered
into a conditional agreement for the sale of PBJ
During 2017, 2,142 hectares previously held by PBJ2 that are
adjacent to the existing PBJ land were reallocated to PBJ.
However, in renewing the izin lokasi for the PBJ area as
enlarged by this reallocation, there was a reduction of 246
hectares in the total area the subject of the izin lokasi.
Extension of the CDM land allocation in 2017 also resulted in
a net reduction of 826 hectares. Other areas that are not yet
fully titled in KMS and PBJ2 can be expected to result in
reduced hectarage upon renewal of allocations. Moreover,
areas the subject of land allocations may be further reduced
on full titling as land the subject of conflicting claims, deemed
unsuitable for oil palm cultivation or allocated for smallholder
cooperatives may be excluded.
Not all areas in respect of which full HGU titles are issued can
be planted with oil palms. Some fully titled land may be
unsuitable for planting, a proportion must be set aside for
conservation and a further proportion will be required for
roads, buildings and other infrastructural facilities. Following
the sale of PBJ, the directors believe that the remaining fully
titled land and land allocations will permit extension of the
group’s retained oil palm plantings to an eventual total planted
area approaching 50,000 hectares.
With land prices rising and increasing interest in plantation
development, land is much less available than was the case in
1991 when the group was first established in East
Kalimantan. Moreover, the Indonesian government is now
applying a “use it or lose it” policy to land. Pursuant to this
policy, land allocations and titles may be rescinded if the land
concerned is not utilised within a reasonable period for the
purposes for which it was allocated. The group must therefore
be careful in managing its land bank to ensure that it can
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Strategic report
Agricultural operations
continued
demonstrate clear plans for the development of all of its
undeveloped land holdings.
Land development
Areas planted as at 31 December 2017 amounted in total to
44,094 hectares. Of this total, mature plantings comprised
34,076 hectares having a weighted average age of 13 years.
A further 777 hectares planted in 2014 were scheduled to
come to maturity at the start of 2018.
The breakdown by planting year of the total of 44,094 planted
hectares (which exclude planted areas to be relinquished by
SYB upon completion of the SYB land swap agreement
described under “Land areas” above) is shown below.
Planted areas Hectares
Mature areas
1994 416
1995 1,956
1996 2,272
1997 2,479
1998 4,829
1999 351
2000 874
2004 3,190
2005 2,279
2006 3,362
2007 3,455
2008 991
2009 625
2010 1,419
2011 1,073
2012 1,950
2013 2,555
34,076
Immature areas
2014 777
2015 2,236
2016 5,757
2017 1,248
44,094
Planted areas that complete a planned planting programme for a
particular year but are planted in the early months of the succeeding year
are normally allocated to the planting year for which they were planned.
The above table includes a total of 232 hectares of flood prone areas
forming part of the 2009 and 2010 plantings at CDM that were previously
abandoned but may be recoverable.
Towards the end of 2017, the group conducted a review of the
development programme for CDM. As a consequence of this
review, the planting of 1,000 hectares originally planned in
CDM was cancelled in order to concentrate on larger, near
contiguous blocks within this estate with a view to completing
this development in the most cost-effective manner. At the
same time, it was decided to examine carefully the status of
the important conservation reserves in the wetland area which
the group is concerned to protect. This review is continuing
and a decision regarding how best to manage this area will be
taken in due course.
Development work at PBJ was hampered by the weather
conditions throughout 2017 as extension planting, planned to
occur predominantly in lower lying areas in the north west
section, had to be postponed until consistently drier weather
would permit bunding to control flooding to be completed.
Delays in the PBJ planting and the review of the CDM
development programme meant that, as previously announced,
the target of completing 3,000 hectares in PBJ and CDM
combined in 2017 was not achieved. Cumulative
development for the year is detailed below:
PBJ CDM Total
hectares hectares hectares
Cleared, not yet planted at
1 January 2017 492 1,089 1,581
Cleared, during 2017 351 429 780
Cleared, not yet planted at
31 December 2017 (595) (605) (1,200)
Planted during the period 248 913 1,161
The balance of the targeted 3,000 hectares has been carried
over to 2018 and, following completion of this, extension
planting in 2018 is now expected to be concentrated on PU.
As weather conditions become more favourable and with
certain land issues in respect of the remaining pockets of
immediately plantable land in PBJ now resolved, clearing and
planting of PBJ will continue in the coming months as
completion of the sale of PBJ is not expected to occur before
31 August 2018.
There remain some additional areas for planting out in KMS
which should increase the 4,500 hectares that have been
planted to date to an eventual total of some 4,800 hectares.
Of this total, some 750 hectares that were planted in 2013
will in due course be transferred to village cooperatives.
At current cost levels, extension planting in areas adjacent to
the existing developed areas still offers the prospect of good
returns. Accordingly, it remains the policy of the directors that,
subject to financial and logistical constraints, the group should
continue its expansion and should aim over time to plant with
oil palms all suitable undeveloped land available to the group
(other than areas set aside by the group for conservation).
Such expansion will, however, involve a series of discrete
annual decisions as to the area to be planted in each
forthcoming year and the rate of planting may be accelerated
or scaled back in the light of prevailing circumstances.
Moreover, the group’s capacity for extension development is
likely to remain dependent upon the rate at which the group
can make additional land areas available for planting.
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Processing and transport facilities
The group currently operates three oil mills in which the FFB
crops harvested from the mature oil palm areas are processed
into CPO and palm kernels. The two older mills date from
1998 and 2006 respectively and each is designed to have
effective processing capacity of 80 tonnes per hour. The third
mill, operating since 2012, has a current capacity of 40 tonnes
per hour but is being expanded to increase its capacity to
60 tonnes per hour. Completion of the installation works for a
second boiler and other equipment needed to achieve this
expansion was delayed in 2017 by extended lead times for
deliveries. This provided the opportunity for the new head of
mills, who was appointed mid-year and has extensive
experience in managing palm oil mills in the region, to re-
negotiate certain arrangements with suppliers and the works
are now expected to conclude in the second half of 2018.
Following an extensive programme of refurbishment, all but
one of the four boilers in the group’s older mills have recently
been reconditioned; reconditioning of the fourth boiler is
continuing. Having two boilers in a mill provides resilience and
facilitates downtime for the ongoing programme of routine
maintenance and upgrading work required to maximise
extraction rates, minimise oil losses and ensure that the
design throughput is retained. Extraction rates improved in
the second half of 2017 to consistently better levels than in
2016 as noted under “Crops and extraction rates” below.
Once the recent plantings at KMS and the plantings at CDM
reach a certain level of maturity, a further oil mill is likely to be
needed to process the additional FFB production from these
new areas. As production from the early plantings in PBJ has
increased, processing arrangements have been agreed with a
third-party mill in the vicinity, pending completion of the
disposal of PBJ. In due course, PBJ would require its own
mill. Existing processing capacity is, for the time being,
sufficient for the group’s own processing requirement and to
process the current flow of crops from smallholders.
Two of the group’s oil mills incorporate, within the overall
facilities, palm kernel crushing plants in which palm kernels
are further processed to extract the CPKO that the palm
kernels contain. The processing of kernels into CPKO avoids
the material logistical difficulties and cost associated with the
transport and sale of kernels. Each kernel crushing plant has
a final design capacity of 150 tonnes of kernels per day which
is sufficient to process kernel output from the group’s three oil
mills. Total installed capacity is currently 250 tonnes per day.
A fleet of barges for transporting CPO and CPKO is used in
conjunction with tank storage adjacent to the oil mills and a
transhipment terminal owned by the group downstream of the
port of Samarinda. The core river barge fleet, which is
operated under time charter arrangements to ensure
compliance with current Indonesian cabotage regulations,
comprises a number of small vessels, ranging between 750
and 2,000 tonnes. These barges are used for transporting
CPO and CPKO from the estates to the transhipment terminal
for bulking and then either loading to buyers’ own vessels on
an FOB basis or for loading to either a 4,000 tonne or 2,400
tonne sea-going barge. The sea-going barges, also operated
under time charter arrangements, make deliveries to
customers on a CIF basis in other parts of Indonesia. On
occasion, the group also spot charters additional barges for
shipments and to provide temporary storage if required.
The directors believe that flexibility of delivery options is
helpful to the group in its efforts to optimise the net prices,
FOB port of Samarinda, that it is able to realise for its produce.
Moreover, the group’s ability itself to deliver CPO on a CIF
basis, buyer’s port, allows the group to make sales without
exposure to the collection delays sometimes experienced with
FOB buyers.
The majority of CPO sales are now made to Indonesian
refineries in Balikpapan, East Kalimantan, and Kota Baru,
South Kalimantan, which can be easily accessed from the
group’s bulking station on the Mahakam River and to which
the voyage time is much shorter than that to East Malaysia
where historically the majority of CIF sales were made.
During periods of lower rainfall (which normally occur for short
periods during the drier months of May to August of each
year), river levels on the upper part of the Belayan become
more volatile and CPO and CPKO must be transferred by road
from the mills to a point some 70 kilometres downstream at
Pendamaran where the group has established a permanent
loading facility and the year round loading of barges of up to
2,400 tonnes is possible.
The group maintains its own fleet of trucks to transport CPO
and CPKO from the oil mills either to the usual loading points
on the upper reaches of the Belayan River or to the
downstream loading point at Pendamaran as weather
conditions may dictate.
The current river route downstream from the mature estates
follows the Belayan River to Kota Bangun (where the Belayan
joins the Mahakam River), and then the Mahakam through
Tenggarong, the capital of the Kutai Kartanegara regency,
Samarinda, the East Kalimantan provincial capital, and
ultimately through the Mahakam delta into the Makassar
Straits. When a fourth oil mill is eventually constructed to
process FFB from the newer estates at KMS and CDM, the
CPO and CPKO from that mill is likely to be evacuated by an
alternative upstream route via the Kedang Kepala River which
joins the Mahakam between Kota Bangun and Tenggarong.
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Strategic report
Agricultural operations
continued
Crops and extraction rates
Key agricultural statistics for the year to 31 December 2017
(with comparative figures for the corresponding period of
2016) were as follows:
FFB crops (tonnes) 2017 2016
Group harvested 530,565 468,371
Third party harvested 114,005 98,072
Total 644,570 566,423
Production (tonnes)
Total FFB processed 630,600 560,957
CPO 143,916 127,697
Palm kernels 29,122 26,371
CPKO 11,052 9,840
Extraction rates (percentage)
CPO 22.8 22.8
Palm kernels 4.6 4.7
CPKO 38.0 34.7
Rainfall (mm)
Average across the estates 3,620 3,449
As previously reported, production showed a marked
improvement in 2017. The recovery which started in the
middle of 2017 continued into the second half when cropping
was up 18 per cent to 342,000 tonnes of FFB from 290,000
tonnes of FFB in the first half, notwithstanding that the
outcome for the last quarter of the year was more muted than
had been envisaged. This was partly because the remedial
action required across the group’s estates in both the field and
infrastructure took longer than expected to complete and
partly because of the number of harvesting days disrupted by
rain during the traditional peak cropping period.
Mill extraction rates in early months of 2017 reflected the
harvesting and transportation difficulties noted above but
started to recover towards the middle of the year and
improved through the second half, to levels close to or above
23 per cent for CPO and 39 per cent for CPKO, compared
with 22 per cent and 37 per cent in the first half. The
refurbishment works in the group’s two older mills and regular
mill maintenance, as referred to under “Processing and
transport facilities” above, coupled with a drive to improve the
quality of third party FFB from smallholders and nearby
estates have all contributed to the improvements in overall
extraction rates now being achieved.
Action to resurface and strengthen the group’s road
infrastructure throughout 2017 and continuing into 2018 is
steadily improving access to the mature areas and evacuation
of harvested crop to the group’s mills. In PBJ, as detailed
under “Stone and coal operations” below, stone is now being
sourced from the group’s own quarry operations. This
arrangement is expected to continue following completion of
the sale of PBJ.
In line with agronomy advice, fertiliser applications in the
mature areas were significantly increased for 2017 and it is
planned that the higher dosage levels will be continued
through 2018. Fertiliser applications in immature areas have
always been maintained at high levels and therefore there
have been no material changes for those areas.
It is intended that some 1,000 hectares of mature areas
hectares that have been damaged over the years by periodic
flooding will be bunded and resupplied in the next one to two
years. These areas apart, the group retains good stands in all
of its mature areas. Optimisation of field disciplines and
improving crop yields are increasingly evident in current
production, which is gradually being restored to former
standards and, in due course, to surpass those standards.
Crops at the beginning of 2018 reflected an East Kalimantan
wide poorer cropping period. However, March showed a
noticeable upturn and this has continued into April. If the daily
cropping rates currently being seen are maintained for the last
few days of the month, crop of some 200,000 tonnes can be
expected for the first 4 months of the year (4 months to April
2017: 159,706 tonnes).
Revenues
During 2017, all of the group’s CPO and CPKO was sold in
the local Indonesian market, reflecting continuing strong
demand from easily accessible local refiners and the delivery
efficiencies achievable from selling to this nearby customer
base. The group has established relationships with each of
the four main refineries now operating in the region.
Competition between these refineries ensures that prices
achieved are competitive. Local sales do not attract export
duty but arbitrage between the local and international markets
means that the price differential between the markets is
normally an almost exact reflection of the additional imposts
incurred on exports.
CPO and CPKO sales are made on contract terms that are
comprehensive and standard for each of the markets into
which the group sells. The group therefore has no current
need to develop its own terms of dealing with customers.
CPO and CPKO are widely traded and the group does not
therefore see the concentration of its sales on a small number
of customers as a significant risk. Were there to be problems
with any one customer, the group could readily arrange for
sales to be made further afield and, whilst this could result in
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An additional three megawatts of generating capacity are
dedicated to PLN, the Indonesian state electricity company, to
use in supplying power to 26 villages and sub-villages
surrounding the group’s estates by way of a local grid.
Payment for the power so utilised is made by PLN to the
company and the local district power company, Perusahaan
Daerah Kelistrikan Dan Sumber Daya Energi Kabupaten Kutai
Kartanegara (“Perusda”), at fixed rates determined by
Indonesian state regulations. The rate of uptake continues to
grow and, as further households install prepay meters, power
offtake from the group is projected to increase. Revenue from
electricity sales amounted to some $627,000 in 2017,
compared with $563,000 in 2016. PLN may, in due course,
be able to increase its power capacity requirement to eight
megawatts.
Methane production could be further increased by installing a
third methane capture plant in the group’s most recently
constructed mill. There are other potential opportunities for
cost reduction from the use of surplus methane, such as
conversion of the group’s vehicle fleet to run on a biomethane
and diesel mix, which could reduce diesel consumption in the
group’s vehicles by some 70 per cent.
Other cost saving initiatives that have been implemented by
the group in recent years include measures to reduce the use
of pesticides, in-house production of harvester bridges and
manufacture of bricks for housing using a mixture of cement
and boiler ash from the mills.
The group’s new information system, of which the first phase
was implemented in 2015, now provides transparent oversight
of substantially all estate activities involving labour and
production. Work continues on implementing field inputting of
data from handheld devices throughout the group’s operations
and integrating the operational data being recorded with the
group’s accounting records.
additional delivery costs, the overall impact would not be
material.
With some revival in the International Sustainability and
Carbon Certification (“ISCC”) certified market, the group sold
62,566 tonnes of ISCC certified CPO and a further 3,001
tonnes of Roundtable for Sustainable Palm Oil (“RSPO”)
certified CPKO during 2017 at premia of, respectively, $7 and
$55 per tonne.
As a rule, all CPO and CPKO produced by the group is sold on
the basis of prices prevailing immediately ahead of delivery
but, on occasions when market conditions appear favourable,
the group may make forward sales at fixed prices. The fact
that export duty is levied on prices prevailing at date of
delivery, not on prices realised, does act as a disincentive to
making forward fixed price sales since a rise in CPO prices
prior to delivery of such sales will mean that the group will not
only forego the benefit of a higher price but may also pay
export tax on, and at a rate calculated by reference to, a higher
price than it has obtained. No deliveries were made against
forward fixed price sales of CPO or CPKO during 2017 and
the group currently has no sales outstanding on this basis.
The average prices per tonne realised by the group in respect
of 2017 sales of CPO and CPKO, adjusted to FOB,
Samarinda, and net of export duty were, respectively, $592
(2016: $521) and $1,134 (2016: $1,111).
Operating efficiency
The group’s costs principally comprise: direct costs of
harvesting, processing and despatch; direct costs of upkeep of
mature areas; estate and central overheads in Indonesia; the
overheads of the UK head office; and financing costs. The
group’s strategy, in seeking to minimise unit costs of
production, is to maximise yields per hectare, to seek
efficiencies in overall costs and to spread central overheads
over as large a cultivated hectarage as possible.
The group’s operations lie in an area where average rainfall
levels are high. The group endeavours to capitalise on this
advantage by striving to achieve economic efficiencies and
best agricultural practice. In particular, careful attention is
given to ensuring that new oil palm areas are planted with high
quality seed from proven seed gardens and that all oil palm
areas receive appropriate husbandry.
Methane from the group’s two methane capture plants, which
were commissioned in 2012, drives four generators (each of
one megawatt capacity) providing power for the group’s own
use. These generators have enabled the group to achieve
material savings in energy costs with consumption of diesel oil
for electricity largely eliminated on the REA Kaltim and SYB
estates.
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Strategic report
Stone and coal operations
Concessions
Operating activities
The group holds interests in respect of two stone deposits and
two coal mining concessions, all of which are located in East
Kalimantan in Indonesia.
The stone concessions comprise a substantial deposit of high
grade andesite stone located to the north east of the SYB
northern plantations and a much smaller limestone deposit
adjacent to the PBJ plantations.
The coal mining concessions comprise a high calorific value
deposit near Kota Bangun and the lower grade Liburdinding
concession in the southern part of East Kalimantan.
Structure
Stone quarrying is classified as a mining activity for Indonesian
licensing purposes and is subject to the same regulatory
regime as coal mining. The group’s stone interests are
therefore managed in conjunction with the group’s coal
interests through an Indonesian subsidiary company, PT KCC
Resources Indonesia (“KCCRI”), which is 95 per cent owned
by the company’s UK subsidiary company, KCC Resources
Limited, and five per cent owned by local partners.
The andesite stone and coal mining concessions are held by
Indonesian concession holding companies, which are currently
wholly owned by the group’s local partners but with the group
having the right, subject to satisfaction of certain conditions
(the “applicable conditions”), to acquire 95 per cent of each of
the concession holding companies at the local partners’
original cost. In the meanwhile, the concession holding
companies are financed by loan funding from the group on
terms such that no dividends or other distributions or
payments may be paid or made by the concession holding
companies to the local partners without the prior agreement of
the group.
Changes to the Indonesian regulatory regime applicable to
foreign investment in mining since the above arrangements
were agreed are likely to mean that the applicable conditions
cannot be satisfied in their existing form. The concession
holding companies have not been consolidated, therefore,
although the group is confident that such conditions could
over time be successfully renegotiated without material loss to
the group. In the meanwhile, in consideration of the group’s
continuing support for KCCRI and all the concession holding
companies, the andesite stone concession holding company
has guaranteed the obligations to the group of the coal
concession holding companies.
The limestone concession, which is adjacent to the group’s
PBJ property, is held by an independent Indonesian third party
with which the group has indirectly concluded an exclusive
offtake agreement as detailed below.
Pursuant to arrangements agreed in respect of the limestone
quarry during 2017, KCCRI purchases crushed stone from a
third party contractor who quarries the stone at the
concession site and then delivers it to a site within the PBJ
property for crushing by the same contractor. The resultant
crushed stone is currently being sold by KCCRI to PBJ but
potentially could also be sold to other group companies, as
well as to third parties. At the moment, the crushed stone
purchased by PBJ is being utilised for hardening roads but in
due course could also be used as an aggregate for other
infrastructure projects. The arrangements agreed between
KCCRI and the third party contractor, and between that
contractor and the concession owner, provide that the
contractor has exclusive rights to quarry the concession and
that all stone quarried is transferred to and crushed at PBJ
and then sold to KCCRI. The concession size is estimated at
between 1.2 and 1.5 million tonnes although there may be
scope later to extend into an adjacent area. Quarry operations
commenced in May 2017 and crushing commenced in
September with some 22,000 tonnes delivered to the PBJ
site for road building.
Pursuant to the conditional agreement for the sale of PBJ, it
has been agreed that KCCRI will continue to use the existing
site within PBJ for crushing stone and KLK will procure that
PBJ offers KCCRI first refusal on all future contracts for the
supply of stone to PBJ.
The operating licence required to establish a simple quarrying
and crushing operation on the andesite stone concession was
obtained in 2014. It is planned that crushed stone will be
transferred from the concession site by truck to a stockpile on
the REA Kaltim estates from which onward deliveries would
be made to the agricultural operations and third party buyers.
The agricultural operations can utilise significant quantities of
crushed stone for their building and infrastructure construction
programmes. In addition, indications are encouraging that
there would also be good third party demand for crushed
stone for road building and use as a concrete aggregate.
The group is reviewing several options for developing and
operating the andesite stone concession for which suitable
road access is a necessary preliminary to commencing
extraction operations. A feasibility study undertaken in 2017
indicated a reduced upfront cost of opening a quarry at this
concession of some $3 million and the prospect of a payback
over a shorter period then previously contemplated. The group
remains of the view that there is local demand for stone in the
volumes that the feasibility study assumes. Discussions in
respect of a joint venture arrangement are ongoing, pursuant
to which a third party would operate the quarry, market the
crushed stone production and provide the development
funding required in exchange for a share of future profits.
For the moment, however, to the extent that any further capital
is to be committed to its stone and coal operations, the group
is giving priority to the reopening of its coal concessions, as it
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believes that these offer greater certainty of quicker returns
with lower risk than the andesite concession.
The directors decided in 2012 to limit further capital
commitments to the coal operations and to concentrate the
group’s efforts on maximising recoveries of the amounts
already invested. Then in 2014, there was a substantial fall in
international coal prices and coal activities were suspended.
With the recent recovery in prices the group is working
towards arrangements to resume operations.
Of the group’s two coal concessions, the most important is the
Kota Bangun concession as this principally contains high
value semi-soft coking coal which is currently in good demand.
In April 2018, the group concluded arrangements with the
owners of an adjacent mine to acquire an established loading
point on the Mahakam River, together with a coal conveyor
that crosses the group’s concession and runs to the loading
point. With this acquisition concluded, the group has been
able to apply for the loading point to be relicensed and for a
licence to export coal from the Kota Bangun concession. As
soon as these necessary permits have been obtained,
dewatering can start and thereafter recommencement of
mining. Meanwhile, the group is finalising arrangements to
sell the existing coal stockpile at the concession of some
16,000 tonnes, utilising the loading point on the Mahakam.
The group keeps under review options for the Liburdinding
concession with a view to either divesting the concession in its
entirety or entering into arrangements similar to those
applicable to the Kota Bangun concession whereby the group
would be guaranteed a minimum revenue from the
concession.
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Strategic report
Sustainability
Transparency
Certification
The group is committed to operating in a responsible and
transparent manner. The group has made its policy framework
publicly available since early 2015 and publishes biennial
sustainability reports in addition to the sustainability
information published each year in the annual report.
The group’s third sustainability report was published during
2017 and is available for download from the group’s website:
www.rea.co.uk. This report provides updated detail regarding
the group’s environmental and social performance as well as
the sustainability challenges faced through 2015 and 2016,
allowing stakeholders to monitor the group’s progress in
meeting its sustainability commitments. The report follows the
internationally recognised Global Reporting Initiative (“GRI”)
standard, allowing the group’s sustainability performance to be
compared with that of other oil palm growers. The group’s
next sustainability report will be published in 2019.
In October 2017, the group was ranked 16th out of 50 oil
palm companies by the Zoological Society of London’s (“ZSL”)
Sustainable Palm Oil Transparency Toolkit (“SPOTT”). This
toolkit uses publicly available information regarding
certification, supply chain traceability and environmental
management policies to generate a score indicating a
company’s commitment to sustainability and transparency.
Although the group’s ranking is lower than its previous position
of 9th reflecting improvements in the scores of other oil palm
companies, the group’s overall score has increased from 64.4
per cent (38 out of 59 points) in 2016 to 67.4 per cent (80.5
points out of 119.5 points) in 2017 moving it from the middle
orange category (33-66 per cent) to the higher green
category (above 66 per cent). The SPOTT criteria have
changed and the number of categories has increased from 7
to 10, complicating comparison of current and previous
rankings.
Policies
The group continues to follow the policy framework
implemented in early 2015, which incorporates the
requirements of all of the sustainability standards and
regulations to which the group has committed. Together these
policies reinforce the group’s commitment to well-established
best practices, including sustainable development through the
provision of socio-economic benefits for local communities,
the protection of biodiversity and ecosystem functions, zero-
burning, reducing greenhouse gas emissions and a
zero-tolerance approach to bribery and slavery. The policy
framework was updated in 2017 to include a statement
detailing the group’s stance against modern slavery, in line
with the UK’s Modern Slavery Act 2015. The policy
framework can be downloaded from the group’s website at
www.rea.co.uk/sustainability/policies.
Certification of the oil palm industry, preferably by multiple
certification schemes, provides third-party verification that a
company is operating according to national and international
standards. Further, it encourages improvement of practices
across the industry by establishing higher premia for certified
products. The group remains committed to ensuring that all of
its plantations and mills achieve and maintain, amongst others,
Roundtable for Sustainable Palm Oil (“RSPO”) certification,
International Sustainability and Carbon Certification (“ISCC”)
and Indonesian Sustainable Palm Oil (“ISPO”) certification.
RSPO
The group has been a member of the RSPO since 2007.
REA Kaltim’s two oldest oil mills, Perdana oil mill (“POM”) and
Cakra oil mill (“COM”), were first certified in 2011 along with
their supply chains. Each year since, these mills and their
supply chains have undergone assessments to monitor their
continued compliance with the RSPO standard. In 2016,
POM, COM, the COM kernel crushing plant ("KCP") and their
supply chains along with the group’s downstream bulking
station successfully underwent full recertification audits, which
are required every five years. In April 2017, POM, the KCP at
COM and the bulking station duly passed their annual
surveillance 1 audits. The annual surveillance 1 audit for COM
is due to be completed in May 2018.
In November 2017, the Certification Body SCCS awarded the
group’s third oil mill at Satria (“SOM”) RSPO certification for its
mill and KCP. Subsequently, there was a change in the
regulations whereby a mill is no longer eligible for certification
unless the estates that supply the mill are also certified in
accordance with the RSPO principles and criteria. This led to
the SOM certification being rescinded pending certification of
the Satria estate that supplies it. SOM’s KCP, on the other
hand, has retained its certification.
As previously reported, there remains an outstanding High
Conservation Value (“HCV”) compensation liability at Satria
estate regarding a small area of land that was cleared in 2008
prior to conducting an HCV assessment. A compensation
plan was submitted to the RSPO in 2016, including a proposal
of how the group intends to compensate for the cleared land
but acceptance of this plan has been delayed by the need to
clarify the precise extent and location of the land in question.
Once the RSPO has agreed the position, SOM and its supply
chain will undergo an RSPO audit. It is hoped to resolve the
compensation liability during 2018.
A second HCV compensation liability is outstanding for
approximately 959 hectares of land cleared at CDM.
Although there is no mill at CDM, a compensation plan has
been submitted to the RSPO in furtherance of the group’s
commitment to achieve full RSPO certification for all of its
operations. RSPO has responded positively to the objectives,
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timeline and proposed compensation set out in the plan and,
once implementation has been agreed, the compensation
payments will be settled over several years.
ISCC
CPO produced from ISCC certified mills can be sold for the
production of biodiesel that meets the requirements of the
European Union Renewable Energy Directive (“EU RED”). In
2017, all three of the group’s mills passed the recertification
audits and new ISCC certificates were issued for COM in
March, POM in June and SOM in July 2017.
ISPO
It is mandatory for oil palm companies operating in Indonesia
to acquire ISPO certification. REA Kaltim successfully
achieved ISPO certification in 2016 and passed audit
surveillance tests in 2017. SYB has not yet obtained ISPO
certification, as the land application permit for the palm oil mill
effluent (“POME”) treatment facility, for which an application
was submitted to the district level of the Department of
Environment in October 2016, is still pending.
Recommendation letters have now been issued and submitted
to the certification body at ISPO and the permit is expected to
be issued shortly.
Certified sales
Production and sales of certified CPO and CPKO are shown
below:
Tonnes
CPO CPKO CPO CPKO
2017 Production
2017 Sales
RSPO certified 10,133 3,446 – 3,001
ISCC certified 81,738 – 62,566 –
Other 52,045 7,606 81,632 8,802
Total 143,916 11,052 144,198 11,803
In making sales of CPO that is both RSPO and ISCC certified,
the group has to decide which certification should apply to
each sale.
The reason that little CPO and CPKO is sold under RSPO
certification is that, in the context of the overall market for
such oils, the group’s monthly production is relatively small
which makes the logistics of finding a suitable buyer
challenging. Instead, the group uses the RSPO “PalmTrace”
system whereby physical sales and processing activities of
certified palm oil and palm kernel oil can be registered. RSPO
PalmTrace also offers a marketplace and the option to register
off market deals (“Book and Claim”) for RSPO “credits” which
confirm that the certified palm oil was produced by an RSPO-
certified company.
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Environment
The group maintains ISO 14001:2004 Environment
Management System certification for its operations. POM and
COM acquired this certification in May 2015 while the REA
Kaltim estates, SOM and the SYB estates achieved
certification in February 2016. The certifications will be due
for renewal in, respectively, May and September 2018.
The group’s mills have also been rated, at both provincial and
national levels, under PROPER, the “Program for Pollution
Control Evaluation and Rating”. The ratings attained by the
group’s mills in 2017 are shown below, where blue denotes
environmental management standards that are in accordance
with the regulations and green denotes environmental
management that is higher than the standard requirement.
The green awards at provincial level reflect the provision of
energy to local communities through biogas production.
National Provincial
POM Blue Green
COM Blue Green
SOM (awaiting POME permit) Blue
2017 is the seventh year for which the company has
calculated and reported its carbon footprint using RSPO’s
PalmGHG calculation tools. For the last two years, the
company has applied RSPO PalmGHG calculator v. 3.0.1.
Changes in the calculation methodologies have led to some
discrepancies between current and previous GHG emission
calculations.
With the reduction in land clearing during 2017 compared
with 2016, the related CO2 emissions were also reduced,
while the increased oil palm hectarage in 2017 meant that
there was more sequestration of greenhouse gases by the oil
palm plantings. As a result, when improvements in POME
treatment, lower fuel usage for transport and storage and
improved cultivation by smallholders are also taken into
account, total carbon emissions in 2017 are estimated to have
been lower than in 2016.
Responsible agricultural practices
The quality of river water, tap water and air quality across the
group’s plantations and employee facilities is measured
regularly. Maintaining fresh water resources is vitally
important for the group’s operations, both for use in the mills
and for the provision of clean water for homes in the group
villages. The group’s mills operate a zero-effluence policy,
whereby no by-products resulting from the production of CPO
or CPKO are expelled into local water courses.
A substantial proportion of the POME that is produced at
POM and COM is diverted to the methane capture facilities at
each mill to be used in generating renewable energy. POME
that is not used for methane production, as well as POME
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Strategic report
Sustainability
continued
produced at SOM and the digested POME residue of
methane production is treated in the traditional manner by
being pumped through a series of open ponds to reduce its
biological oxygen demand (“BOD”) and then used for land
application in flat beds between rows of oil palm, allowing the
remaining nutrient content to be used as a fertiliser. The BOD
of the POME in the final open pond at each mill is tested on a
monthly basis by a third party to ensure that it is below the
legal limit for land application in Indonesia. All three mills
continued to meet this standard in 2017.
The group seeks to optimise the quantity of organic and
inorganic fertiliser that it applies and supplements inorganic
applications with organic fertiliser so as to maximise the use of
the empty fruit bunches (“EFB”) discarded by the mills.
Having ceased composting operations in 2016, as these were
found to have become less effective in terms of nutrient
production now that the majority of POME is directed to the
biogas facilities, the group has reverted to the application of
EFB for mulching. This provides the palms with organic
matter that helps to retain ground moisture which is important
during dry weather periods and also helps to minimise the
application of inorganic fertiliser.
The group’s inorganic fertiliser regime is designed by
independent agronomy consultants, based on analysis of the
nutrient content of systematically selected oil palm frond
samples, supplemented by visual inspection of palm canopies
and soil sampling. In 2015, it became evident that too little
fertiliser was being applied resulting in a nutrient deficiency in
the soils and palms and, as a consequence, lower FFB
productivity. The impact of the reduced application and uptake
of inorganic fertiliser was exacerbated by the prolonged
droughts during 2015 and 2016 as moisture is required to
mobilise the nutrients in the fertiliser to make them available
to the palms. Fertiliser application during drought conditions is
both costly and a waste of resources. Increased quantities of
fertiliser were applied during the second half of 2016 when
wetter conditions helped to boost the nutrient supply base and
improve FFB yields. In order to restore the nutrient content of
the soils and to maximise productivity, the quantity of inorganic
fertiliser in each of 2016 and 2017 was approximately double
that applied in 2015.
Every effort is taken to prevent POME polluting water courses
or neighbouring land. After three incidents in 2016 as a
consequence of prolonged periods of rainfall causing the
POME ponds or flat beds to overflow, the group constructed
bunds around the POME trenches thereby preventing
overflows into neighbouring community land in 2017.
Prolonged periods of rainfall and upcoming groundwater,
however, did cause high pressure and some seepage in the
ponds at POM and SOM. This has been contained by
strengthening the bunds and further work to improve the
bunds around the ponds is continuing in 2018, together with
the construction of additional trenches to prevent overflowing
in the future. Further staff training was conducted in 2017 to
improve the knowledge and understanding of land application
techniques and emergency response procedures in the event
of overflows.
The higher rainfall experienced in 2017 helped to prevent
further outbreaks of pests that were witnessed in 2016.
Employees
At the end of 2017, the group’s workforce numbered 10,958
compared to 8,372 at the end of 2016. The increase in
headcount was due to the recruitment of additional harvesters
and casual workers in the second half of the year to meet the
increasing volume of FFB.
To improve productivity, the group aims to ensure that
employees at every level within the organisation are rewarded
based on their performance. Performance from assistant to
director level is evaluated annually in relation to a pre-agreed
set of quantitative and objective key performance indicators
(“KPIs”). The reward system is under regular review and is
subject to change if more effective methods for improving
productivity are found. In 2017, a new system of
compensation and benefits was implemented for harvesters
whereby monthly production incentives are now paid based on
the number of days in a month in which the quantity of FFB
harvested by an individual exceeds a set minimum level. The
more days that a harvester exceeds the minimum level, the
greater the monthly incentive. A quarterly bonus is also
awarded to the two most productive harvesters at each estate
as an additional incentive. This system replaced the previous
scheme. The introduction of the new compensation package
has led to a marked improvement in harvester productivity.
The group endeavours to provide competitive salary packages,
opportunities for career development and a decent standard
of living on the estates for employees and their families. This
is particularly important given the remote location of the
group’s estates.
Good quality housing and community facilities for employees
are a priority. The group continues to build houses using
bataco blocks, which are produced in-house by mixing boiler
ash from the mills with cement. Use of this material has
significantly reduced both the cost and environmental footprint
of new houses. The group also provides each village
emplacement with a medical clinic, church, mosque, sports
facilities and a market.
In 2008, the group established a foundation to manage the
network of schools across the estates. The foundation now
manages 28 schools, including 13 pre-schools, 14 primary
schools and one secondary school. At the end of 2017, 433
pre-school children, 1,793 primary school children and 202
secondary school students were enrolled in the group’s school
system.
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In order for the group’s operations to run efficiently, good
management is essential. The group aims to achieve this by
facilitating the upward mobility of promising employees and by
recruiting and training new graduates. The mechanism for this
is the group’s long established cadet training programme. The
programme is run from the group’s central training school and
provides participants with 12 months of theoretical and
practical training in all aspects of plantation management.
Cadets who successfully complete the training are appointed
as assistants on the group’s estates, in the mills and various
other departments. Over the last 11 years, 269 cadets have
participated in this programme and almost 70 per cent are still
employed by the group. 10 people enrolled in the
2016/2017 programme, all of whom successfully graduated
and progressed to positions at the group’s mills, the
established and developing estates, the plasma projects and
the conservation department.
Career advancement is not restricted to members of the cadet
training programme. To equip employees at every level with
the skills and knowledge to perform effectively and to advance
their careers, the group also runs an annual training
programme. The programme is designed by the group’s
training manager, based on input received from every
department, and consists of both in-house training and
participation in external training and conferences.
The group takes seriously its duty to protect and respect the
human rights of any person affected by its operations and is
committed to adhering to the core conventions of the
International Labour Organisation’s Fundamental Principles
and Rights at Work, as well as Indonesian labour regulations
and the provisions of the Modern Slavery Act 2015. The
policy on human rights is displayed at every work site in order
to communicate the group’s commitments in this regard to
employees at every level. This policy includes a commitment
to promote diversity and equality in the workplace and states
clearly that discrimination based on age, disability, ethnicity,
gender, marital status, political opinion, race, religion or sexual
orientation will not be tolerated. As at 31 December 2017, 37
ethnicities and 5 religions were represented in the group’s
workforce.
The group pays careful attention to the gender balance within
its workforce. At the end of 2017, women accounted for 29
per cent of the group’s workforce, including 18 per cent of the
management team.
2017 2016
Number of Number of Number of Number of
male staff female staff male staff female staff
Directors 4 2 5 1
Management 66 13 61 12
Rest of workforce 7,670 3,214 6,007 2,298
Total 7,729 3,229 6,061 2,311
Management
Overall responsibility for the group’s operations resides with
the group managing director, who is based in the UK. The
president director of the group’s principal operating subsidiary,
REA Kaltim, together with 4 fellow directors has overall local
responsibility for the group’s affairs in Indonesia, covering the
estate operations, corporate affairs, commercial administration
and finance.
Day to day execution of the REA Kaltim board’s executive
responsibilities is undertaken by a small team of senior
managers in Indonesia together with the group’s chief financial
officer and regional secretary, both of whom are based in
Singapore but spend a substantial proportion of their time in
Indonesia acting on behalf of the group’s board to assist in
ensuring consistency and cohesion between London and
Indonesia. The directors believe that basing senior
management in the same time zone as the group’s operations
facilitates management oversight and improves its
effectiveness.
As a foreign investor in Indonesia, the group is conscious that
it is in essence a guest in Indonesia and an understanding of
local customs and sensitivities is important. The group’s ability
to rely on senior Indonesian staff to handle its local interface is
therefore a significant asset upon which the group continues
to build. This asset is augmented by the support and advice
that the group obtains from local advisers and from the local
non-controlling investors in, and local commissioners of, the
company’s Indonesian subsidiaries.
Whilst a number of executive functions have, over the past few
years, been successfully transferred from the UK to Singapore
and Indonesia, the group has concluded that it is important to
maintain separation between the responsibilities of the group
managing director and the person in overall charge of the
group’s Indonesian operations and, accordingly, the managing
director will remain based in the UK for the foreseeable future.
Health and safety
The group remains committed to implementing the
internationally recognised Operational Health and Safety
Management System (“OHSAS”) 18001. Monthly inspections
of the group’s mills, estates and biogas facilities are
undertaken to ensure planned health and safety measures are
implemented in order to meet the criteria for OHSAS 18001
certification.
Regular training sessions are conducted to instil the
importance of safe working practices into all employees and
contractors. Routine training sessions include the appropriate
use of protective equipment, first aid, fire safety and risk
management for high risk tasks (working at height, in confined
spaces, with chemicals or high voltage). An emergency
response team has been established with training courses
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Strategic report
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conducted for fires, responding to chemical spills, explosions
and riots. Roads in the region of the group’s operations can
be hazardous, particularly after heavy rain, therefore drivers of
all vehicles are required to pass a company-set driving test
and motorcycle safety training is provided for employees and
members of their families.
Despite regular and routine training, it takes time for health
and safety practices to become fully embedded in workforce
practices. An internal audit for OHSAS 180001 and for the
Indonesian certification system, based on Indonesian
government regulation 50/2012, was conducted during 2017
and determined that the target for obtaining both OHSAS
18001 and Occupational Health & Safety Management
System certification should again be postponed until the end
of 2018.
Although measures are taken to minimise the occurrence and
severity of accidents, incidents still occur. In 2017 there were
872 Lost Time Incidents (“LTIs”) compared to 649 LTIs in
2016. However, man-hours in 2017 were 24,934,348
compared to 17,301,932 man-hours in 2016, so relative to
total man-hours there was a 6.8 per cent reduction in LTIs.
Regretfully there were two fatalities between September and
December 2017. Of these, one was work related and the
other one was non work-related. The group treats any fatality
within its premises extremely seriously and responds in the
same way irrespective of whether the incident is considered to
be work-related or not. The group maintains a rigorous
incident investigation and reporting procedure to ensure that
the cause of any incident is properly identified and that the
senior management operations teams understand the
remedial action required.
External healthcare provision is extremely limited in the
remote locations of the group’s operations. The group has
established a network of 16 clinics, which treat employees,
their families and also members of the local communities. In
the last quarter of 2017, the group appointed a new chief
medical officer and one permanent dentist, so medical care is
now provided by two doctors, a dentist and a team of
paramedics and midwives. The medical team conducts a
monthly immunisation programme for families, including
collaborations with external medical professionals to
participate in the Indonesian government’s polio immunisation
programme. The medical team also conducts blood and lung
tests twice a year to check for chemical exposure in workers
who come into regular contact with pesticides. If workers test
positive for pesticide exposure, they are rotated out of
spraying and into other roles. There are also audiometry and
ergonomic tests for certain workers. As a precautionary
measure, drugs tests are taken once a year to try to prevent
drug usage and addiction amongst employees.
Community relations
The group aims to develop and maintain good relationships
with the people that are impacted by its operations.
Successful relationship building with surrounding communities
is seen as key to the group’s ability to operate efficiently and
reduce the frequency of compensation claims by villages.
Relationships with local communities have improved over the
last few years through regular formal and informal
engagement with a wide variety of village groups and
representatives, as well as a transparent approach to resolving
claims of outstanding rights to compensation for land through
the group’s department of village affairs (“DVA”).
In 2017, 27 land rights claims were made against the group
for a total area of some 624 hectares, a significant reduction
from the 70 claims over 1,572 hectares of land experienced in
2016, most of which are being successfully resolved or have
been found to be spurious.
Community development
Over the last 20 years the group has endeavoured to ensure
that its business contributes to improvement in the socio-
economic status of the communities that live in the vicinity of
its operations. What began as a primarily philanthropic
approach has evolved into established schemes designed to
ensure that local communities share in the benefits generated
by the group’s operations.
The core principle is to clarify where communities need
support in order for them to be and remain self-sufficient in
their food and energy supplies and in their commercial
activities. The group collaborates with the communities in
such a way that they can benefit from the group’s operations
without being dependent upon them. Initiatives developed to
achieve this include maximising employment opportunities for
local people, supporting and improving local businesses,
expanding smallholder schemes and investing in infrastructure
projects that will catalyse further development. Many of these
initiatives work in tandem with local government programmes.
Renewable energy generated by the group was provided to 26
villages, comprising approximately 13,000 households,
through the infrastructure established by PLN. PLN connects
villages to the electricity supplied by the group which it
purchases from the group at a price of $0.07 per kilowatt
hour.
The benefits to local communities from this project are
substantial. Prior to the establishment of this energy scheme,
villages relied on diesel-powered generators for their
electricity supply. The switch to methane-generated electricity
not only provides communities with a cheaper, lower emission
and renewable energy source, but also allows them to be
more independent from the group as they no longer rely on
donations of diesel from the group to run their generators.
During 2017, PLN continued its work of providing electricity
installations for the residents of local villages not yet
connected to the supply. Some further installation work
remains to be completed in 2018.
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In 2017, the group completed the installation of a further two
new water treatment facilities, in addition to the five water
treatment facilities that were already established by the end of
2016, providing the local communities in three additional
villages with access to clean water. The group’s community
development department provides training for the treatment
plant operators to encourage independence from the group in
recognition of the importance of each local village having
control of the management and maintenance of its own
resources.
Plasma schemes differ from PPMD in their financing and
management. Plasma schemes established to date have been
financed by loans to the cooperatives from the group and local
development banks. The cooperatives themselves are not
responsible for, or involved in, the management of the plasma
plantations but rather the group manages these areas in
return for a pre-agreed management fee. The cooperatives,
therefore, receive an income based on the value of FFB
harvested minus loan repayments and management fees in
accordance with government regulations.
DVA conducts a mentoring scheme for small businesses and
households, making routine visits to local communities to
provide advice to farmers on improving their yields and
minimising the environmental impact of their practices.
Sessions are also conducted on how to manage household
finances and loans. In collaboration with local government and
neighbouring companies, the group seeks to improve the
infrastructure around villages and provides donations in the
form of equipment, expertise or money where necessary to
support villages in improving their own roads, schools and
other community facilities. The group also works with the local
university and the Training Center for Agriculture and Rural
Support to enhance mutual understanding and cooperation.
Other community support is provided in the form of assistance
with the organisation of women’s groups and various youth
activities in local villages, including sports competitions, history
classes, scouting and social activities.
Smallholders
Developing smallholder schemes and purchasing FFB from
independent smallholders not only creates mutually beneficial
business relationships, but also results in financial benefits for
local communities, and increases employment and
opportunities to educate local farmers in more sustainable
agricultural practices. The group engages with smallholders in
three ways: through a programme known as “Program
Pemberdayaan Masyarakyat Desa” (“PPMD”), through
“plasma” schemes and by purchasing FFB directly from
independent smallholders.
The group has been working with smallholders since 2001
under the ‘Smallholder Farmers Program’ which became the
PPMD programme in 2005. Under this scheme, the group
assisted cooperatives of local people with access to land to
cultivate oil palm by providing them with oil palm seedlings,
fertilisers, herbicides and technical assistance. The costs of
the inputs provided are repaid by the members of these
cooperatives, interest free, through deductions made when
their FFB is sold to the group’s palm oil mills.
Plasma smallholder schemes are established for the benefit of
the communities that are surrounding the company
plantations, as part of the group’s obligation to responsible
development of new land for oil palm, in accordance with
regulations introduced by the Indonesian government in 2007.
The development of oil palm plantations under the plasma
development programme can take longer to organise than the
development of PPMD or group-owned estates, due to the
more complex nature of the funding, legal aspects and
management of these areas. It is critical that, before
development begins, members of each cooperative fully
understand how plasma schemes work, including the cost of
cultivating oil palm, the terms of the financial agreements with
the group or bankers to the schemes and the predicted
income over time to the members of each cooperative. The
plasma schemes at the group’s established estates are not
required under the 2007 government legislation as these
estates were developed prior to 2007, but in the interests of
equitable treatment, the group has committed to develop
plasma cooperatives for villages whose land overlaps with the
group’s location permit obtained from the government. By the
end of 2017, 4,744 hectares of plasma has been developed,
compared with 3,567 hectares at the end of 2016.
Since 2015, FFB has only been accepted from independent
smallholders who have participated in the group’s smallholder
mapping process. The aim of this process is to create a map
and a comprehensive database of all smallholder land within
the group’s supply base in order to ensure traceability of the
FFB supply chain. The volume of FFB purchased by the group
is verified against the farmer’s registered details. Traceability
of fruit purchased from smallholders to a specific farmer and
plot of oil palm is critical to the group’s ability to improve
practices among its suppliers. The group remains committed
to achieving RSPO certification for independent smallholders
that make up part of the supply base and in 2017 conducted
cultivation technical training and accounting training in order
to improve the practices of both PPMD cooperatives and
independent smallholders. Further specific training is planned
for 2018 and 2019.
During 2017, the group collaborated with 18 PPMD
cooperatives, 8 plasma cooperatives and 8 independent
smallholder cooperatives. Together they accounted for some
17 per cent of the FFB processed in the group’s mills and
received revenue equivalent to some $14.4 million.
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FFB purchased (tonnes) 2017 2016
Plasma 12,179 9,986
PPMD 91,822 80,666
Independent smallholders 10,004 7,399
Total 114,005 98,052
Revenue ($ million) 14.4 10.4
maintain and enhance biodiversity surveys, in cooperation with
local and international scientists, including HCV boundary
marking and monitoring, camera trapping point surveys, belt-
transects, restoration and enrichment activities and
conservation education in schools. REA Kon also conducts
water quality monitoring to obtain a reliable picture of the
physical and biological health of conservation areas.
Conservation
Plantation development in the tropics can result in a
significant alteration of biodiversity and natural ecosystem
functions. Agricultural operations should ensure for the long
term the effectiveness of natural ecosystem characteristics
and services. Ideally, the operational aspects required for oil
palm cultivation, harvest, processing and delivery should be
integrated with conservation principles, not only with measures
in place to avoid or mitigate negative impacts, but also with
positive steps to restore or enhance significant portions of the
original landscape level biological diversity.
Aware of the importance of minimising the environmental
impact of its operations, the group incorporated a strategy for
enhanced best practice, within the policy framework adopted
at the beginning of 2015. This was to ensure that all those
involved in the process of planning and development of new
land were aware of the responsibility to prevent or mitigate
negative impacts of plantation development. As dictated by
the group’s policy and the RSPO’s new planting procedure on
which the group’s policy is based, the process of opening new
land begins with a series of surveys and assessments typically
conducted by qualified experts. These environmental and
social impact assessments include an evaluation of land use
changes, assessments of high conservation value (“HCV”)
characteristics of the landscape, soil surveys and carbon stock
assessments. The results of these assessments guide
development teams to avoid disturbance of areas of cultural
biological significance, steep areas, riparian zones or peat
soils, including any habitats containing high carbon stock.
The area designated as conservation reserves within the
group’s titled land bank totals approximately 20,000 hectares,
accounting for some 23 per cent of the group’s titled areas.
Since 2008, this network of conservation reserves has been
managed by the REA Kaltim conservation department, known
as REA Kon, an in-house team of experienced
conservationists, ecologists, herpetologists, ornithologists and
education and media specialists with good knowledge of the
biological and cultural diversity of the region. Using empirical
information derived from scientific field studies, hands-on
conservation education and active management, REA Kon’s
aim is to conserve or enhance the natural biodiversity and
ecosystem functions of the landscape in which the group
operates.
REA Kon conducts systematic monthly activities in order to
28
R.E.A. Holdings plc Annual Report and Accounts 2017
In 2017, a total of 19 new camera traps were installed in REA
Kaltim and CDM. These camera traps recorded a total of 34
mammal, bird and reptile species. Three of these species are
threatened: Pongo pygmaeus (Orangutan) (Endangered),
Manis javanica (Sunda Pangolin, Trenggiling) (Critically
endangered) and Helarctos malayanus (Malayan Sun Bear,
Beruang Madu) (Endangered). The Prionailurus bengalensis
or leopard cat (Kucing Hutan) was also detected in 2017.
REA Kon monitors the orangutans found in the conservation
areas of four of the group’s estates on a monthly basis by
conducting nest surveys along permanent transects. In 2017,
monthly permanent transect walks revealed a total of 94
orangutan nests which had remained intact for a total of 652
days, implying that, on average, each nest remained intact for
about 7 days. These transects confirm that a population of
orangutans continues to use the conservation reserves within
the group’s concessions. Further surveys that focus on
identifying orangutan individuals will be undertaken during
2018 and 2019 to verify the current status of the orangutan
population.
An important aspect of REA KON’s work to protect the habitat
and biodiversity within conservation areas is regular
engagement with surrounding communities and REA’s
workforce. Frequent engagement allows REA Kon to
exchange ideas with local communities and workers about its
efforts to maintain local biodiversity and natural ecosystem
services. REA Kon also seeks to form closer bonds and better
communication with local villages and independent farmers. In
2017, REA Kon conducted regular visits to schools in REA
emplacements as well as educational activities with
communities and workers, mostly in the form of presentations,
followed by discussions, about rare, threatened and
endangered species. A conservation education camp was
organised in the field station to provide more hands-on
learning about environmental issues for a broader age group
from within the local community.
REA Kon also conducts visits to villages to meet senior
members of communities to promote positive environmental
action by villages, including HCV protection and proper waste
management. REA Kon often conducts these visits in
collaboration with the Indonesian Government’s Natural
Resources Conservation Agency.
Education can help to promote a positive attitude towards
conservation amongst local communities and the workforce,
249315 REA Holdings p01-p41.qxp 27/04/2018 12:56 Page 29
but the message needs to be reinforced through the active
management of conservation areas. The boundaries of
conservation areas are marked with visible posts and
signboards to clearly delineate HCV land within the group’s
concessions and REA Kon routinely patrols the edges of the
conservation areas to monitor for signs of human disturbance
and to map areas damaged through human activity or fire.
Despite REA Kon’s continued engagement with local
communities, there are still cases of encroachment into the
group’s conservation areas by loggers or independent farmers.
Rough analyses of satellite-based land cover maps have
revealed that there has been much vegetation change in the
conservation areas over the past decade, suggesting potential
clearing in some areas and potential regrowth in others. The
group is now analysing the changes to the quality and extent
of forested areas with the use of recent high-resolution land
cover maps.
Managing the encroachment of conservation reserves is
arguably the greatest sustainability challenge faced by the
group. The problem is exacerbated by Indonesia’s complicated
land rights system. A standard operating procedure has been
developed to ensure that the plantation, conservation, village
affairs and security teams fully understand their respective
responsibilities in tackling encroachment and can respond
quickly and effectively if logging or land clearing is detected
within the conservation reserves. When an area of
encroachment is reported by plantation teams or found during
patrols, REA Kon visits the location to determine the extent of
the affected area, the person or group responsible and the
existence of any legal or customary rights. The matter is then
passed to DVA, which is responsible for determining whether a
case requires compensation or prosecution and for
proceeding with the appropriate action.
In addition to gathering information regarding each case of
encroachment, REA Kon also assesses the risk of further
encroachment for each area and establishes the ecological,
social and legal feasibility of restoring the natural vegetation
as well as the cost of doing so. Based on this information,
REA Kon develops an action plan for each location where
encroachment has occurred.
REA Kon manages a nursery area of native species for the
purpose of restoring the natural vegetation, but whilst it would
be ideal to restore all locations with natural vegetation, the
group’s ability to do so depends on obtaining the free, prior
and informed consent of any legitimate legal or customary
land use rights holders to change the use of these areas. To
protect the conservation areas set-aside in newer
developments, all legal and customary land use rights to the
conservation reserves are identified and acquired in the same
way as for the land designated for oil palm cultivation. The
group acknowledges the importance of free, prior and
informed consent for conservation and, although this was not
the group’s policy when the group’s REA Kaltim and SYB
estates were developed some years ago, adhering to this
policy going forward should facilitate the group’s ability to
prevent and address any clearance of future reserves.
With ample rainfall during 2017, there were no forest fires
recorded in the region.
Camera trap photo from KMS
conservation reserve 2015
Company birthday celebrations 2014
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Strategic report
Finance
Accounting policies
The group and the company continue to report in accordance
with International Financial Reporting Standards (“IFRS”) and
to present their financial statements in dollars. The significant
change in accounting policy adopted last year in accordance
with the amendment of IAS 41 Agriculture effective 1 January
2016 has been continued, with bearer plants accounted for as
property, plant and equipment.
This policy continues to affect the reported losses for 2017
and 2016 by both including a charge for depreciation of
bearer plants (which were formerly treated as biological
assets) and also not including a movement in the fair value of
bearer plants, which would tend to be an uplift reflecting the
expansion of the group’s hectarage or planted hectarage, as
was the case in every year that the former IAS 41 Agriculture
applied.
One small change to accounting policies in 2017 is that the
group has ceased to amortise its land titles. This reflects the
expectation of the directors, having reviewed the relevant
Indonesian legislation, that there would be no difficulty in
renewing the “hak guna usaha” (“HGU”) titles to land in the
future. This is consistent with the approach and expectation
of other oil palm groups. The amount of amortisation provided
on land titles in 2016 was $432,000.
Group results
Group revenue, operating loss and loss before tax for 2017,
with comparative figures for 2016, were as follows:
2016
$’m $’m
2017
Revenue 100.2 79.3
Operating loss (2.2) (5.0)
Loss before tax (21.9) (9.3)
The significant increase in revenue in 2017 reflected the
higher crop harvested during the year and an improvement in
the selling prices achieved for the group’s CPO and CPKO.
The increase was in part offset by an increase in cost of sales
reflecting the remedial actions taken during the year to restore
the conditions of the mature estates, of which the full benefit
will only accrue in 2018 and later years, and the higher prices
paid for third party FFB.
The significant adverse movement on loss before tax as
compared with 2016 ($21.9 million against $9.3 million)
principally arose from the change in the value of the group’s
sterling notes arising from exchange fluctuations resulting in a
charge of $4.8 million in 2017 contrasting with a credit of
$10.5 million in 2016.
Cost of sales reported for 2017, with comparative figures for
2016, was made up as follows:
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R.E.A. Holdings plc Annual Report and Accounts 2017
2016
$’m $’m
2017
Depreciation and amortisation 22.2 21.0
Purchase of external FFB 14.4 9.1
Estate operating costs 49.7 41.7
86.3 71.8
The valuation of closing agricultural produce inventory at the
end of 2017 at lower prices than at 31 December 2016
resulted in a negative movement on such inventory of $1.1
million (2016: $0.6 million gain).
Administrative expenses amounted to $13.7 million in 2017,
compared to $12.0 million in 2016. A number of one off
costs were incurred during the year including staff
retrenchment costs arising from the combination in
Balikpapan of the group’s former Indonesian offices in
Samarinda and Jakarta as well as costs arising from changes
to senior management.
Investment revenues were $1.1 million against $1.7 million in
2016. The latter figure benefited from the inclusion of
interest of $1.1 million received in respect of tax amounts
refunded as a result of Jakarta Tax Court decisions.
Finance costs totalled $20.8 million (2016: $6.0 million), the
difference principally reflecting the change in the value of the
group’s sterling notes arising from exchange fluctuations with
a charge of $4.8 million in 2017 compared to a credit of
$10.5 million in 2016.
The taxation charge on the loss before tax amounted in 2017
to $3.0 million against $2.0 million in 2016. Two principal
factors have adversely affected this charge in 2017. First,
regulations in Indonesia limit interest deductions for tax
purposes in circumstances where the equity in an entity is
small by comparison with interest bearing borrowings.
Following the anticipated sale later in the year of the group’s
holding in PBJ, reorganisation of Indonesian subsidiary capital
structures should mitigate the negative impact of these
regulations in future. Secondly, the tax losses in Indonesia,
which can only be carried forward for a maximum of five years,
have been reviewed and partly written down to reflect revised
anticipated utilisation.
The directors continue to plan the establishment of a target
for long term average return on equity once group profitability
has been restored. The negative return for 2017 was
16.1 per cent (2016: negative 7.6 per cent).
249315 REA Holdings p01-p41.qxp 27/04/2018 12:56 Page 31
Dividends
The fixed semi-annual dividends on the 9 per cent cumulative
preference shares that fell due on 30 June and 31 December
were duly paid. In view of the results reported for 2017, the
directors have concluded that they should not declare or
recommend the payment of any dividend on the ordinary
shares in respect of 2017.
Capital structure
The group is financed by a combination of debt and
shareholder funds. Total shareholder funds less non-
controlling interests at 31 December 2017 amounted to
$259.1 million as compared with $286.7 million at 31
December 2016. Non-controlling interests at 31 December
2017 amounted to $17.6 million (2016: $22.8 million).
Completion during 2017 of arrangements agreed in 2016
with PT Dharma Satya Nusantara (“DSN”) for the acquisition
by DSN of a 15 per cent minority interest in REA Kaltim,
resulted in the receipt by the group during 2017 of additional
loans from DSN of $11.7 million and £3.9 million and an
additional payment by DSN for its 15 per cent interest in REA
Kaltim of $807,000.
In addition, the group raised monies during 2017 from the sale
of 7.5 per cent dollar notes 2022 (“2022 dollar notes”) held in
treasury at end 2016 and an issue of 9 per cent cumulative
preference shares of £1 each (“preference shares”). $7.2
million of 2022 dollar notes were sold during the year for a
consideration of $7.1 million while in October 2017
8,358,768 preference shares were issued, fully paid, by way of
placing at par plus accrued dividend for a total consideration
equivalent to $11,398,000.
On 30 June 2017 the company repaid all of the outstanding
$20.2 million nominal of 7.5 per cent dollar notes 2017
(“2017 dollar notes”) at par plus accrued interest. This was
followed in October and December 2017 by the purchase by
the company for cancellation of £298,000 nominal of the 9.5
per cent guaranteed 2015/17 sterling notes (“2017 sterling
notes”) issued by a wholly owned subsidiary of the company.
The outstanding balance of £8.0 million nominal of the 2017
sterling notes were then repaid on 21 December 2017 at par
plus accrued interest.
Revolving working capital facilities of the Indonesian rupiah
equivalent of $19.9 million provided by the group’s principal
Indonesian bankers, PT Bank DBS Indonesia (“DBS”), were
rolled over for a further twelve months at the end of July
2017.
Following these transactions, group indebtedness at 31
December 2017 amounted to $220.0 million against which
the group held cash, cash equivalents and investments of $8.3
million. The composition of the resultant net indebtedness of
$211.7 million was as follows:
$’m
7.5 per cent dollar notes 2022
(“2022 dollar notes”) ($24.0 million nominal) 23.6
8.75 per cent guaranteed sterling notes 2020
(“2020 sterling notes”) (£31.9 million nominal) 41.4
Loans from non-controlling shareholder 29.9
Indonesian term bank loans 72.1
Drawings under working capital lines 53.0
220.0
Cash and cash equivalents (5.6)
Investments (2022 dollar notes held in treasury) (2.7)
Net indebtedness 211.7
The group has no material contingent indebtedness save that,
in connection with the development of oil palm plantings
owned by village cooperatives and managed by the group, the
group has, as noted under “Smallholder schemes” in
“Sustainability” above, guaranteed the bank borrowings of the
cooperatives concerned. The outstanding balance of these at
31 December 2017 was equivalent to $8.1 million.
The 2022 dollar notes are unsecured obligations of the
company and are repayable in a single instalment on 30 June
2022. The sterling notes are issued by REA Finance B.V., a
wholly owned subsidiary of the company, are guaranteed by
the company and REA Services Limited (a wholly owned UK
subsidiary of the company) (“REAS”), and are secured almost
wholly on unsecured loans made by REAS to Indonesian
plantation operating subsidiaries of the company. The 2020
sterling notes are repayable in a single instalment on
31 August 2020.
Indonesian bank borrowings at 31 December 2017 comprised
Indonesian rupiah denominated amortising term loans and
working capital loans to each of REA Kaltim, SYB, PBJ and
KMS.
The REA Kaltim loans are provided by DBS, are secured on
certain assets of REA Kaltim and are guaranteed by the
company. The outstanding balance of such loans at 31
December 2017 was the equivalent of $70.3 million
comprising term loans of $23.0 million and working capital
loans of $47.3 million. The term loans are repayable as
follows: 2018: $3.4 million, 2019: $6.5 million and thereafter
$13.1 million. The working capital loans fall due for renewal in
2018 ($16.3 million) and 2019 ($31.0 million).
The SYB loans are also provided by DBS, are secured on
certain assets of SYB and are guaranteed jointly by the
company and REA Kaltim. The outstanding balance of the
loans at 31 December 2017 was the equivalent of $14.9
million, comprising a term loan of $9.2 million and a working
capital loan of $5.7 million. The term loan is repayable as
follows: 2018: $1.4 million, 2019: $2.6 million and thereafter
$5.2 million. The working capital loan falls due for renewal in
July 2018.
R.E.A. Holdings plc Annual Report and Accounts 2017
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Strategic report
Finance
continued
The PBJ loan is provided by PT Bank UOB Indonesia (“UOB”),
is secured on the assets of PBJ and is guaranteed jointly by
the company and REA Kaltim. The outstanding balance of the
loan at 31 December 2017 was the equivalent of $21.6
million repayable as follows: 2018 $1.1 million, 2019 $3.2
million and thereafter: $17.3 million. Pursuant to the
conditional agreement for the sale of PBJ, it is expected that
the loan will be discharged upon completion.
The KMS loan is provided by PT Bank Mandiri (Persero) Tbk
(“Mandiri”), is secured on the assets of KMS and is
guaranteed by the company. The outstanding balance of the
loan at 31 December 2017 was the equivalent of $18.2
million repayable as follows: 2018: $0.3 million, 2019: $1.5
million and thereafter $16.4 million.
At 31 December 2017, unutilised facilities available to the
group comprised the equivalent of $7.9 million available to be
drawn from UOB as an addition to the existing amortising
term loan to PBJ (subject to discharge upon the sale of PBJ).
The company has shareholder authority to buy back limited
numbers of ordinary shares into treasury with the intention
that, once a holding of a reasonable size has been
accumulated, the holding be placed with one or more
investors. No acquisitions pursuant to this authority were
made in 2017 but 132,500 ordinary shares had been
previously acquired and remain held in treasury.
Group cash flow
Group cash inflows and outflows are analysed in the
consolidated cash flow statement. Cash and cash equivalents
decreased over 2017 from $24.6 million to $5.5 million.
As noted under “Group results” above, operating loss for 2017
amounted to $2.2 million compared to a loss of $5.0 million in
the prior year. After adjusting for depreciation, amortisation
and other non-cash items ($24.1 million) and a reduction in
working capital ($23.9 million) cash generated by operations
was $45.8 million (2016: $25.4 million). The decrease in
working capital was primarily due to careful management of
trade payables and an increase in customer deposits.
Taxes paid net of refunds at $1.2 million were similar to 2016
($2.1 million). Interest paid amounted to $24.9 million (2016:
$20.7 million) reflecting the fact that less interest payable was
accrued at year-end than in the prior year.
Investing activities for 2017 involved a net outflow of $33.7
million (2016: $31.6 million). This represented new
investment of $33.7 million (2016: $33.4 million) offset by a
small amount of interest received. The new investment
comprised expenditure of $32.0 million (2016: $31.1 million)
on further development of the group’s agricultural operations,
$0.9 million (2016: $0.4 million) on land rights and titling and
$0.7 million (2016: $1.9 million) on the stone and coal
operations.
The net cash outflow from financing activities amounted to
$4.9 million (2016: inflow of $37.8 million) made up as
follows:
2016
$’m $’m
2017
Issue of new ordinary shares – 13.1
Issue of new preference shares 10.9 –
Issue/sale of new sterling notes – 1.9
Redemption of 2017 dollar notes (20.2) –
Redemption of 2017 sterling notes (11.1) –
Reorganisation of dollar notes – (0.1)
Sale of investments 7.1 –
Sale of shareholding in subsidiary – 14.0
Borrowings from non-controlling
shareholder and related party 24.0 12.4
Net change in other borrowings (7.8) 3.9
Dividend payments (7.8) (7.4)
(4.9) 37.8
Liquidity and financing adequacy
Whilst the group again reported a loss in 2017, as explained
elsewhere in this Strategic report that loss reflected an
increase in operating costs of which the full benefits did not
accrue in 2017, crops that although higher than in 2016 were
still below those that the group should be delivering and a
level of financing charges disproportionate to the profitability
of the group. Crops are now recovering further and with much
of the remedial work needed on the group’s mature estates
completed should, subject to CPO and CPKO prices, deliver
increased revenues without a proportionate increase in
operating costs. The directors are therefore confident that the
group’s operations will become increasingly cash generative.
As noted under “Future direction” above, the group has
entered into a conditional agreement for the divestment of
PBJ, such agreement being conditional upon shareholder
approval, necessary regulatory consents in Indonesia and the
consent of REA Kaltim’s lending bank. The proceeds of the
sale of the PBJ shares and the repayment of monies owed by
PBJ to the group will be applied in reduction of REA group
indebtedness. Such agreement will be subject to approval by
the company’s shareholders and to the usual regulatory
consents in Indonesia. It is expected that completion of the
sale will occur in September 2018.
In addition to addressing finance costs by reducing overall
levels of indebtedness, the group is also seeking to convert
Indonesian rupiah denominated borrowings into dollar
denominated borrowings upon which the group would be
charged interest at dollar interest rates which are significantly
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249315 REA Holdings p01-p41.qxp 27/04/2018 12:56 Page 33
lower than rupiah interest rates. As a first step in this
direction, the group has recently obtained an offer of a new
$35 million dollar denominated bank facility which may be
utilised either in its entirety to replace rupiah borrowings or in
part for that purpose (to the extent of the equivalent of $12
million) and in part to provide the group with additional
undrawn borrowing facilities.
As noted under “Capital structure” above, as at 31 December
2017, the group held cash of $5.6 million and had undrawn
facilities equivalent to a total of $7.9 million under the UOB
amortising term loan facility. This facility will continue to be
used partially to fund expenditure on PBJ pending completion
of its sale, whereupon it is expected that the loan will be
discharged. In addition, the balance of 2022 dollar notes
remaining in treasury at end 2017 has now been sold to
realise $2.6 million and available liquidity has been further
augmented to the extent of the $23 million available as a
result of the facility offer above. Sale of PBJ will very
substantially further improve the group’s available cash
resources.
As at 31 December 2017, bank debt due within one year
amounted to $28.1 million. Of this, $22.0 million represented
drawings under the group’s revolving working capital facilities.
The directors have no reason to believe that these facilities
will not be rolled over at the end of July 2018 when the
facilities fall due for renewal.
Since June 2015, the group’s financial position has been
much improved by the subscription of some $39.5 million for
new ordinary and preference shares, the issue of a total of
$65 million of 2020 sterling notes and 2022 dollar notes in
replacement of previous notes now redeemed and the loan
and equity investment totalling $44 million by DSN. The sale
of PBJ should complete the financial restructuring.
The sale of PBJ will serve the important financial purpose of
reducing debt. It will also permit the group to consolidate its
operational activities in a more compact area and to operate
for longer without the need for an additional oil mill. This can
be expected to result in a capital expenditure programme
better aligned to the group’s operational cash flows. The
steady progress towards the resumption of mining on the
group’s principal coal concession should also lead to
progressive recovery of amounts invested in coal. On the
reasonable assumption that the divestment of PBJ will be
completed as expected, the directors are confident that the
group will have the cash resources that it needs for the
foreseeable future.
Should the sale of PBJ for any reason not be completed (an
eventuality that the directors consider unlikely), then the group
would be left with a higher level of indebtedness than the
directors believe is desirable. Depending upon the level of
CPO prices and operational performance during the remainder
of 2018, the group may then need to seek some additional
equity funding to address this.
The group’s oil palms fruit continuously throughout the year
and there is therefore no material seasonality in the funding
requirements of the agricultural operations in their ordinary
course of business. It is not expected that development of the
stone and coal operations will cause any material swings in
the group’s utilisation of cash for the funding of its routine
activities.
Financing policies
The directors believe that, in order to maximise returns to
holders of the company’s ordinary shares, a proportion of the
group’s funding needs should be met with prior ranking capital,
namely borrowings and preference share capital. The latter
has the particular advantage that it represents relatively low
risk permanent capital and, to the extent that such capital is
available, the directors believe that it is to be preferred to debt.
As respects group borrowings, the directors believe that the
group’s interests are best served if borrowings are structured
to fit the maturity profile of the assets that the borrowings are
financing. Since oil palm plantings take nearly four years from
nursery planting to maturity and then a further period of three
to four years to full yield, the directors would prefer to
structure borrowings for the group’s agricultural operations so
that shorter term bank debt is used only to finance working
capital requirements, while debt funding for the group’s
extension planting programme is sourced from issues of listed
debt securities and medium term bank borrowings.
Whilst the group’s borrowings were, when put in place,
substantially consistent with the above objectives, subsequent
events and in particular some delays in the original plans for
expansion of the group’s planted hectarage, meant that by the
end of 2014, the group had become too dependent on short
term debt. To address this and to improve the repayment
profile of the group’s debt, the group has taken various steps
as noted under “Liquidity and financing adequacy”. As a result,
the group’s financing position is now much improved. The
group’s financial restructuring would be completed on the
closing of the sale of PBJ.
Net debt at 31 December 2017 was 76.5 per cent of total
shareholder funds against a level of 66.3 per cent at
31 December 2016. The sale of PBJ will reduce net debt,
Thereafter the directors expect that with growth in the net
assets attributable to ordinary shareholders, the percentage of
ordinary shareholder funds represented by prior ranking
capital will, over time, to be further reduced.
The 2020 sterling notes and the 2022 dollar notes carry
interest at fixed rates of, respectively, 8.75 and 7.5 per cent
per annum. Interest is payable by REA Kaltim and SYB under
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Strategic report
Finance
continued
the DBS amortising term loans and working capital lines, and
by PBJ under the UOB term loan, at floating rates equal to
Jakarta Inter Bank Offered Rate plus a margin and by KMS
under the Mandiri loan at a fixed rate of 11.5 per cent. As a
policy, the group does not hedge its exposure to floating rates
but maintains a balance between floating and fixed rate
borrowings. A one per cent increase in the floating rates of
interest payable on the group’s floating rate borrowings at
31 December 2017 would have resulted in an additional
annual cost to the group of approximately $1.3 million
(2016: $1.4 million).
The group regards the dollar as the functional currency of
most of its operations. The directors believe that the group
will be best served going forward by simply maintaining a
balance between its borrowings in different currencies and
avoiding currency hedging transactions. Accordingly, the
group regards some exposure to currency risk on its non-
dollar borrowing as an inherent and unavoidable risk of its
business.
The group has never covered, and does not intend in future to
cover, the currency exposure in respect of the component of
the investment in its operations that is financed with sterling
denominated shareholder capital.
The group’s policy is to maintain a cash balance in sterling
sufficient to meet its projected sterling expenditure for a
period of between six and twelve months and a limited cash
balance in Indonesian rupiah.
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Colugo (flying lemur)
Sambar
Mountain serpent eagle
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Strategic report
Risks and uncertainties
The group’s business involves risks and uncertainties.
Identification, assessment, management and mitigation of the
risks associated with environmental, social and governance
matters forms part of the group’s system of internal control for
which the board of the company has ultimate responsibility.
The board discharges that responsibility as described in
“Corporate governance” below.
Where risks are reasonably capable of mitigation, the group
seeks to mitigate them. Beyond that, the directors endeavour
to manage the group’s finances on a basis that leaves the
group with some capacity to withstand adverse impacts from
identified areas of risk but such management cannot provide
insurance against every possible eventuality.
Those risks and uncertainties that the directors currently
consider to be material are described below. There are or may
be other risks and uncertainties faced by the group that the
directors currently deem immaterial, or of which they are
unaware, that may have a material adverse impact on the group.
Material risks, related policies and the group’s successes and
failures with respect to environmental, social and governance
matters and the measures taken in response to any failures
are described in more detail under “Sustainability” above.
Risk
Potential impact
Risks assessed by the directors as being of particular
significance are those detailed below under climatic and other
operational factors, produce prices and funding. In the case of
climatic and other operational factors and produce prices, the
directors’ assessment reflects the negative impact on
revenues that could be caused by adverse climatic conditions
or operational circumstances and, in the case of funding, the
considerations referred to in the “Viability statement” in the
“Directors’ report” below.
Mitigating or other
relevant considerations
A loss of crop or reduction in the
quality of harvest resulting in loss of potential
revenue
Over a long period, crop levels should
be reasonably predictable
Agricultural operations
Climatic factors
Material variations from the norm in climatic
conditions
Unusually low levels of rainfall that lead to a
water availability below the minimum required
for the normal development of the oil palm
Overcast conditions
A reduction in subsequent crop levels
resulting in loss of potential revenue;
the reduction is likely to be broadly
proportional to the cumulative size of
the water deficit
Delayed crop formation resulting in
loss of potential revenue
Low levels of rainfall disrupting river transport
or, in an extreme situation, bringing it to a
standstill
Inability to obtain delivery of estate supplies
or to evacuate CPO and CPKO (possibly
leading to suspension of harvesting)
Operations are located in an area of
high rainfall. Notwithstanding some seasonal
variations, annual rainfall is usually adequate
for normal development
Normal sunshine hours in the location
of the operations are well suited to the
cultivation of oil palm
The group has established a permanent
downstream loading facility, where the river is
tidal. In addition, road access (currently
requiring repair) between the ports of
Samarinda and Balikpapan and the estates
when available offers a viable alternative
route for transport with any associated
additional cost more than outweighed by the
potential negative impact of disruption to the
business cycle by any delay in evacuating
CPO
Cultivation risks
Pest and disease damage to oil palms and
growing crops
Other operational factors
A loss of crop or reduction in the quality
of harvest resulting in loss of potential
revenue
The group adopts best agricultural practice
to limit pests and diseases
Shortages of necessary inputs to the
operations, such as fuel and fertiliser
Disruption of operations or increased input
costs leading to reduced profit margins
The group maintains stocks of necessary
inputs to provide resilience and has
established biogas plants to improve its self-
reliance in relation to fuel
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Potential impact
Mitigating or other
relevant considerations
FFB crops becoming rotten or over-ripe
leading either to a loss of CPO production
(and hence revenue) or to the production of
CPO that has an above average free fatty
acid content and is saleable only at
a discount to normal market prices
The group endeavours to maintain resilience
in its palm oil mills with each of the mills
operating separately and some ability within
each mill to switch from steam based to
biogas or diesel based electricity generation
The requirement for CPO and CPKO
storage exceeding available capacity and
forcing a temporary cessation in FFB
harvesting or processing with a resultant
loss of crop resulting in a loss of potential
revenue
The group’s bulk storage facilities have
substantial capacity and further storage
facilities are afforded by the fleet of barges.
Together, these have hitherto always proved
adequate to meet the group’s requirements for
CPO and CPKO storage
Risk
Other operational factors
A hiatus in collection or processing of
FFB crops
Disruptions to river transport between the
main area of operations and the Port of
Samarinda or delays in collection of CPO
and CPKO from the transhipment terminal
Occurrence of an uninsured or inadequately
insured adverse event; certain risks (such as
crop loss through fire or other perils), for which
insurance cover is either not available or is
considered disproportionately expensive, are
not insured
Produce prices
Volatility of CPO and CPKO prices which as
primary commodities may be affected by
levels of world economic activity and factors
affecting the world economy, including levels
of inflation and interest rates
Restriction on sale of the group’s CPO and
CPKO at world market prices including
restrictions on Indonesian exports of palm
products and imposition of high export duties
(as has occurred in the past for short
periods)
Material loss of potential revenues or claims
against the group
Reduced revenue from the sale of CPO and
CPKO production and a consequent
reduction in cash flow and profit
Reduced revenue from the sale of CPO and
CPKO production and a consequent
reduction in cash flow and profit
Distortion of world markets for CPO and
CPKO by the imposition of import controls or
taxes in consuming countries, for example, by
imposition of reciprocal trade barriers or
tariffs between major economies
Depression of selling prices for CPO and
CPKO if arbitrage between markets for
competing vegetable oils proves insufficient
to compensate for the market distortion
created
Expansion
Failure to secure in full, or delays in securing,
the land or funding required for the group’s
planned extension planting programme
Inability to complete, or delays in completing,
the planned extension planting programme
with a consequential reduction in the group’s
prospective growth
The group maintains insurance at levels that
it considers reasonable against those risks
that can be economically insured and
mitigates uninsured risks to the extent
reasonably feasible by management
practices
Price swings should be moderated by the
fact that the annual oilseed crops account for
the major proportion of world vegetable oil
production and producers of such crops can
reduce or increase their production within a
relatively short time frame
The Indonesian government allows the free
export of CPO and CPKO but applies a
sliding scale of duties on exports which
allows producers economic margins. The
extension of this sliding scale to incorporate
a $50 per tonne export levy to fund biodiesel
subsidies is designed to support the local
price of CPO and CPKO
The imposition of controls or taxes on CPO or
CPKO in one area can be expected to result
in greater consumption of alternative
vegetable oils within that area and the
substitution outside that area of CPO and
CPKO for other vegetable oils
The group holds substantial fully titled or
allocated land areas suitable for planting. It
works continuously to obtain and maintain up
to date permits for the planting of these
areas and aims to manage its finances to
ensure, in so far as practicable, that it will be
able to fund the planned extension planting
programme
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Strategic report
Risks and uncertainties
continued
Risk
Expansion
Potential impact
Mitigating or other
relevant considerations
A shortfall in achieving the group’s planned
extension planting programme impacting
negatively the continued growth of the group
A possible adverse effect on market
perceptions as to the value of the company’s
securities
The group maintains flexibility in its planting
programme to be able to respond to changes
in circumstances
Environmental, social and governance practices
Failure by the agricultural operations to meet
the standards expected of them as a large
employer of significant economic importance
to local communities
Reputational and financial damage
Reputational and financial damage
Criticism of the group’s environmental
practices by conservation organisations
scrutinising land areas that fall within a
region that in places includes substantial
areas of unspoilt primary rain forest inhabited
by diverse flora and fauna
Community relations
A material breakdown in relations between
the group and the host population in the area
of the agricultural operations
Disruption of operations, including blockages
restricting access to oil palm plantings and
mills, resulting in reduced and poorer quality
CPO and CPKO production
Disputes over compensation payable for land
areas allocated to the group that were
previously used by local communities for the
cultivation of crops or as respects which local
communities otherwise have rights
Disruption of operations, including blockages
restricting access to the area the subject of
the disputed compensation
Individuals party to a compensation
agreement subsequently denying or
disputing aspects of the agreement
Disruption of operations, including blockages
restricting access to the areas the subject of
the compensation disputed by the affected
individuals
The group has established standard
practices designed to ensure that it meets its
obligations, monitors performance against
those practices and investigates thoroughly
and takes action to prevent recurrence in
respect of any failures identified
The group is committed to sustainable
development of oil palm and has obtained
RSPO certification for most of its current
operations. All group oil palm plantings are
on land areas that have been previously
logged and zoned by the Indonesian
authorities as appropriate for agricultural
development. The group maintains
substantial conservation reserves that
safeguard landscape level biodiversity
The group seeks to foster mutually beneficial
economic and social interaction between the
local villages and the agricultural operations.
In particular, the group gives priority to
applications for employment from members
of the local population, encourages local
farmers and tradesmen to act as suppliers to
the group, its employees and their
dependents and promotes smallholder
development of oil palm plantings
The group has established standard
procedures to ensure fair and transparent
compensation negotiations and encourages
the local authorities, with whom the group has
developed good relations and who are
therefore generally supportive of the group, to
assist in mediating settlements
Where claims from individuals in relation to
compensation agreements are found to have
a valid basis the group seeks to agree a new
compensation arrangement; where such
claims are found to be falsely based the
group encourages appropriate action by the
local authorities
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Risk
Potential impact
Mitigating or other
relevant considerations
Stone and coal operations
Operational factors
Failure by external contractors to achieve
agreed production volumes with optimal
stripping values or extraction rates
Loss of prospective revenue
External factors, in particular weather,
delaying or preventing delivery of extracted
stone and coal
Delays to receipt or loss of revenue
Geological assessments, which are
extrapolations based on statistical sampling,
proving inaccurate
Unforeseen extraction complications causing
cost overruns and production delays or
failure to achieve projected production
Prices
Local competition reducing stone prices and
volatility of international coal prices
Reduced revenue and a consequent
reduction in cash flow and profit
Imposition of additional royalties or duties on
the extraction of stone or coal
Reduced revenue and a consequent
reduction in cash flow and profit
Unforeseen variations in quality of deposits
Inability to supply product within the
specifications that are, at any particular time,
in demand with consequent loss of revenue
Environmental, social and governance practices
Failure by the stone and coal operations to
meet the expected standards
Reputational and financial damage
General
Currency
Strengthening of sterling or the Indonesian
rupiah against the dollar
Adverse exchange movements on those
components of group costs and funding that
arise in Indonesian rupiah or sterling and are
not hedged against the dollar
The group endeavours to use experienced
contractors, to supervise them closely and to
take care to ensure that they have equipment
of capacity appropriate for the planned
production volumes
Deliveries are not normally time critical and
adverse external factors would not normally
have a continuing impact for more than a
limited period
The group seeks to ensure the accuracy of
geological assessments of any extraction
programme and takes expert geological
advice on the results
There are currently no other stone quarries in
the vicinity of the group’s deposits and the
cost of transporting stone should restrict
competition. In relation to coal, the high
quality of the coal in the group’s main coal
concession may limit volatility
The Indonesian government has not to date
imposed measures that would seriously
affect the viability of Indonesian stone
quarrying or coal mining operations
Geological assessments ahead of
commencement of extraction operations
should have identified any material variations
in quality
The areas of the stone and coal
concessions are relatively small and should
not be difficult to supervise. The group is
committed to international standards of
best environmental and social practice and,
in particular, to proper management of
waste water and reinstatement of quarried
and mined areas on completion of
extraction operations
As respects costs and sterling denominated
shareholder capital, the group considers that
this risk is inherent in the group’s business
and structure and must simply be accepted.
As respects borrowings, where efficient the
group seeks to borrow in dollars but, when
borrowing in another currency, considers it
better to accept the resultant currency risk
than to hedge that risk with hedging
instruments
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Strategic report
Risks and uncertainties
continued
Risk
Funding
Bank debt repayment instalments and other
debt maturities coincide with periods of
adverse trading and negotiations with
bankers and investors are not successful in
rescheduling instalments, extending
maturities or otherwise concluding
satisfactory refinancing arrangements
Potential impact
Mitigating or other
relevant considerations
Inability to meet liabilities as they fall due
The group maintains good relations with its
bankers and other holders of debt who have
generally been receptive to reasonable
requests to moderate debt profiles when
circumstances require; moreover, the
directors believe that the fundamentals of the
group’s business will facilitate divestment of
assets or procurement of additional equity
capital should this prove necessary
The group maintains strict controls over its
financial exposures which include regular
reviews of the creditworthiness of
counterparties and limits on exposures to
counterparties. Export sales are made either
against letters of credit or on the basis of
cash against documents
The directors are not aware of any specific
planned changes that would adversely affect
the group to a material extent; current
regulations restricting the size of oil palm
growers in Indonesia will not impact the
group for the foreseeable future
The group endeavours to ensure compliance
with the continuing conditions attaching to its
land rights and concessions and that
activities are conducted within the terms of
the licences and permits that are held and
that licences and permits are obtained and
renewed as necessary
The group has traditionally had, and
continues to maintain, strong controls in this
area because Indonesia, where all of the
group’s operations are located, has been
classified as relatively high risk by the
International Transparency Corruption
Perceptions Index
Maintenance of good relations with local
partners to ensure that returns appropriately
reflect agreed arrangements
Counterparty risk
Default by a supplier, customer or financial
institution
Loss of any prepayment, unpaid sales
proceeds or deposit
Regulatory exposure
New, and changes to, laws and regulations
that affect the group (including, in particular,
laws and regulations relating to land tenure,
work permits for expatriate staff and
taxation)
Breach of the various continuing conditions
attaching to the group’s land rights and the
stone quarry concession (including
conditions requiring utilisation of the rights
and concessions) or failure to maintain all
permits and licences required for the group’s
operations
Failure by the group to meet the standards
expected in relation to bribery and corruption
Restriction on the group’s ability to retain its
current structure or to continue operating as
currently
Civil sanctions and, in an extreme case, loss
of the affected rights or concessions
Reputational damage and criminal sanctions
Restrictions on foreign investment in
Indonesian mining concessions, limiting the
effectiveness of co-investment arrangements
with local partners
Systems access and controls
Constraints on the group’s ability to earn an
equity return on its investment
Weakness in IT controls and financial
reporting system
Likelihood of error or misstatement in
financial statements
The group obtains professional advice to
ensure best practice
40
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Potential impact
Mitigating or other
relevant considerations
Risk
Country exposure
Deterioration in the political or economic
situation in Indonesia
Difficulties in maintaining operational
standards particularly if there was a
consequential deterioration in the security
situation
In the recent past, Indonesia has been stable
and the Indonesian economy has continued
to grow but, in the late 1990s, Indonesia
experienced severe economic turbulence
and there have been subsequent occasional
instances of civil unrest, often attributed to
ethnic tensions, in certain parts of Indonesia.
The group has never, since the inception of
its East Kalimantan operations in 1989, been
adversely affected by regional security
problems
The directors are not aware of any
circumstances that would lead them to
believe that, under current political conditions,
any Indonesian government authority would
impose exchange controls or otherwise seek
to restrict the group’s freedom to manage its
operations
The group accepts there is a significant
possibility that foreign owners may be
required over time to divest partially
ownership of Indonesian oil palm operations
but has no reason to believe that such
divestment would be at anything other than
market value. Moreover, the group has
recently increased local participation by a
transaction with a local investor
The group appreciates its material
dependence upon its staff and employees
and endeavours to manage this dependence
in accordance with international employment
standards as detailed under “Employees” in
“Sustainability” above
The group endeavours to maintain cordial
relations with its local investors by seeking
their support for decisions affecting their
interests and responding constructively to
any concerns that they may have
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Introduction of exchange controls or other
restrictions on foreign owned operations in
Indonesia
Restriction on the transfer of profits from
Indonesia to the UK with potential
consequential negative implications for the
servicing of UK obligations and payment of
dividends; loss of effective management
control
Mandatory reduction of foreign ownership of
Indonesian plantation operations
Forced divestment of interests in Indonesia
at below market values with consequential
loss of value
Miscellaneous relationships
Disputes with staff and employees
Disruption of operations and consequent loss
of revenues
Breakdown in relationships with the local
shareholders in the company’s Indonesian
subsidiaries
Reliance on the Indonesian courts for
enforcement of the agreements governing its
arrangements with local partners with the
uncertainties that any juridical process
involves and with any failure of enforcement
likely to have a material negative impact on
the value of the stone and coal operations
because the concessions are at the moment
legally owned by the group’s local partners
The directors have monitored the impact of the decision to terminate membership of the European Union on its operations. So far,
the impact has been limited to fluctuations of sterling against the US dollar and the Indonesian rupiah (see “General” “Currency” risk
above). The directors do not at present see further significant risk to the group’s operations from this decision. Any reduction in UK
interest rates may negatively impact the level of the technical provisions of the REA Pension Scheme but, given the Scheme’s
estimated funding position, the directors do not expect that the impact will be material in the context of the group.
Approved by the board on 26 April 2018 and signed on behalf of the board by
DAVID J BLACKETT
Chairman
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Governance
Board of directors
David Blackett
Chairman (independent) (67)
Committees: audit, nomination (chairman), remuneration
David Blackett was appointed a non-executive director in July
2008. After qualifying as a chartered accountant in Scotland,
he worked for over 25 years in South East Asia, where he
concluded his career as chairman of AT&T Capital Inc’s Asia
Pacific operations. Previously, he was a director of an
international investment bank with responsibility for the bank’s
South East Asian operations and until October 2014 served
as an independent non-executive director of South China
Holdings Limited (now Orient Victory China Holdings Limited),
a company listed on the Hong Kong Stock Exchange. He was
appointed chairman on 1 January 2016 following the
retirement of Richard Robinow from that position.
Irene Chia
Independent non-executive director (77)
Irene Chia was appointed a non-executive director in January
2013. She has extensive corporate, investment and
entrepreneurial experience in Asia, the USA and the UK. A
graduate in economics and formerly a director of one of the
Jardine Matheson Group companies, she now lives in
Singapore and is currently self-employed with Far Eastern
interests in consulting, property and financial investment as
well as in the charitable sector.
Carol Gysin
Executive director (60)
Carol Gysin was appointed to the board as managing director
on 21 February 2017. Based in London, she had previously
worked for the group for over eight years as group company
secretary, with increasing involvement in the operational areas
of the business, including making regular visits to the group’s
offices and plantation estates in Indonesia. Prior to joining the
group, Carol worked as company secretary to a
telecommunications company, Micadant plc (formerly, Ionica
Group plc, listed on NASDAQ and in London), to a medical
devices company, Weston Medical plc, as well as to a number
of early-stage technology companies, following an initial
career in investment banking.
John Oakley
Non-executive director (69)
After early experience in investment banking and general
management, John Oakley joined the group in 1983 as
divisional managing director of the group’s then horticultural
operations. He was appointed to the main board in 1985 and
in the early 1990s he took charge of the day to day
management of the group’s then embryonic East Kalimantan
agricultural operations. He was appointed managing director
in January 2002 and, until the appointment of a regional
executive director in 2013, was the sole executive director of
the group. He retired as managing director on 1 January
2016 but remains on the board as a non-executive director
and for a transitional period undertaking some additional
responsibilities, in particular overseeing completion of the
group’s new information systems as well as making twice
yearly visits to the group’s estate operations to advise on
operational matters.
Richard Robinow
Non-executive director (72)
Richard Robinow was appointed a director in 1978 and
became chairman in 1984. Following his seventieth birthday,
he retired from the chairmanship on 1 January 2016. He
remains on the board as a non-executive director and, for a
transitional period, is undertaking some additional
responsibilities particularly as respects the financing of the
group. After early investment banking experience, he has
been involved for over 40 years in the plantation industry. He
is a non-executive director of M. P. Evans Group plc, a UK
plantation company of which the shares are admitted to
trading on the Alternative Investment Market of the London
Stock Exchange, and of a Kenyan plantation company, REA
Vipingo Plantations Limited (substantially all of the shares in
which are indirectly owned by his family).
Michael St. Clair-George
Senior independent non-executive director (75)
Committees: audit (chairman), nomination, remuneration
(chairman)
Michael St. Clair-George was appointed to the board on 24
October 2016. He is a fellow of the Institute of Chartered
Accountants in England & Wales. He has over 40 years'
experience in the plantation and agribusiness industries in
Malaysia and Indonesia, having worked for some 25 years with
Harrisons & Crosfield and Harrisons Malaysian Plantations
Berhad, as finance director, and then as president director of
Sipef NV's Indonesian operations. He then spent 10 years as
managing director of Sipef NV, based in Belgium. Retiring
from this position in 2007 and returning to London, he served
until 2013 as senior non-executive director and chairman of
the audit committee of New Britain Palm Oil Limited, a
company then listed in London.
Former directors
Mark Parry (resigned 20 February 2017)
Executive director (56)
Mark Parry joined the group in 2011 as the group’s regional
director based in Singapore and Indonesia. He was appointed
as an executive director in January 2012, as president director
of PT REA Kaltim Plantations in July 2012, and as group
managing director in January 2016.
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Governance
Directors’ report
The directors present their annual report on the affairs of the
group, together with the financial statements and auditor’s
report, for the year ended 31 December 2017. The
“Corporate governance report” below forms part of this report.
As set out in note 40 to the consolidated financial statements,
on 25 April 2018 the company announced that its subsidiary,
PT REA Kaltim Plantations (“REA Kaltim”), has entered into a
conditional agreement for the sale of REA Kaltim’s 95 per
cent interest in PT Putra Bongan Jaya (“PBJ”) to Kuala
Lumpur Kepong Berhad (“KLK”). The sale is conditional, inter
alia, upon the approval by the company’s shareholders and the
consents of Indonesian regulatory authorities. Completion is
not expected to occur before 31 August 2018 and the sale
agreement will lapse if the conditions have not been satisfied
by 31 January 2019.
Save as regards the conditional sale agreement in respect of
PBJ, there are no significant events since 31 December 2017
to be disclosed. An indication of likely future developments in
the business of the company and details of research and
development activities are included in the “Strategic report”
above.
Information about the use of financial instruments by the
company and its subsidiaries is given in note 23 to the
consolidated financial statements.
Results and dividends
The results are presented in the consolidated income
statement and notes thereto.
The fixed semi-annual dividends on the 9 per cent cumulative
preference shares that fell due on 30 June and 31 December
2017 were duly paid. In line with previous indications and in
view of the financial performance during 2017, the directors
have concluded that, as previously announced, they should not
declare or recommend the payment of any dividend on the
ordinary shares in respect of 2017.
As previously indicated, if crops continue to recover as
expected, prices for the group’s palm products are maintained
at around current levels, the sale of PBJ is successfully
completed and the coal operations start to generate suitable
returns, the directors intend to resume the payment of ordinary
dividends. However, the programme of development of the
group’s land bank remains ongoing and will require further
significant capital expenditure. The need to fund such
expenditure will necessarily influence the rates at which the
directors feel that they can prudently declare, or recommend
the payment of, ordinary dividends over the next few years.
Viability statement
The group’s business activities, together with the factors likely
to affect its future development, performance and position are
described in the “Strategic report” above which also provides
(under the heading “Finance”) a description of the group’s
cash flow, liquidity and financing adequacy and treasury
policies. In addition, note 23 to the consolidated financial
statements includes information as to the group’s policy,
objectives and processes for managing capital, its financial
risk management objectives, details of financial instruments
and hedging policies and exposures to credit and liquidity
risks. The “Risks and uncertainties” section of the Strategic
report describes the material risks faced by the group and
actions taken to mitigate those risks. In particular, there are
risks associated with the group’s local operating environment
and the group is materially dependent upon selling prices for
crude palm oil (“CPO”) and crude palm kernel oil over which it
has no control.
As respects funding risk, the group has material indebtedness,
in the form of bank loans and listed notes. Some $5.1 million
(excluding $1.1 million of bank loans to PBJ that will be
discharged upon completion of the sale of PBJ as referred to
below) of bank term indebtedness falls due for repayment
during 2018. A further $22.0 million of revolving working
capital lines fall due for renewal during the same period. A
further £31.9 million ($42.8 million) sterling notes will become
repayable in August 2020. In view of the material proportion
of the group’s indebtedness falling due in the period to 31
December 2020, as described above, the directors have
chosen this period for their assessment of the long-term
viability of the group.
As announced on 25 April 2018, the group has entered into a
conditional agreement for the sale of PBJ. The sale is expected
to realise gross proceeds of approximately $85 million and net
proceeds of approximately $57 million after repayment of
external borrowings and net of selling expenses. The
proceeds of the sale of the PBJ shares and the repayment of
monies owed by PBJ to other group companies will be applied
in reduction of group indebtedness. Completion is not
expected to occur before 31 August 2018 and the sale
agreement will lapse if the conditions have not been satisfied
by 31 January 2019. The purchaser has deposited with the
group the sum of $8 million by way of a pre-completion
advance; should completion not occur then such sum will be
repayable. PBJ is a recently planted property but is not
currently profitable. Accordingly, its sale will not have a
material negative impact on the immediate profit outlook for
the group.
In the meanwhile, the group is continuing discussions to
refinance with longer term debt indebtedness falling due in
2018 and 2019, although the directors have no reason to
believe that the revolving working capital facilities falling due
in 2018 and 2019 will not be rolled over when they fall due
for renewal (all revolving working capital facilities having
previously been substantially rolled over on past renewals).
In 2020 consideration will be given to the submission of
proposals to the holders of the sterling notes to refinance
these with securities of longer tenor.
R.E.A. Holdings plc Annual Report and Accounts 2017
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Governance
Directors’ report
continued
With the improvement in crops now being seen and CPO
prices projected to remain at remunerative levels, the group’s
plantation operations can be expected to generate increasing
cash flows going forward. In addition, the group is currently
finalising arrangements to recommence operations at the
group’s principal coal concession and this can be expected to
result in increasing cash flow. The group’s ongoing extension
planting programme will continue to require material capital
expenditure but the group has flexibility as to the rate of
development. Moreover, successful completion of the
divestment of PBJ referred to above will defer for some years
the group’s requirement for a fourth palm oil mill.
The directors fully expect that the divestment and financing
initiatives currently being pursued, coupled with the improving
outlook for the group’s internally generated cash flows, will
refinance, or permit the group to repay, the group
indebtedness falling due for repayment during the period of
assessment. However, should funding be required pending
completion of these initiatives, the group will seek to issue for
cash a limited number of new shares, authority for which will
be sought as and when appropriate.
Based on the foregoing and after making enquiries, the
directors therefore have a reasonable expectation that the
company and the group have adequate resources to continue
in operational existence for the period to 31 December 2020
and to remain viable during that period.
Going concern
Material risks faced by the group are set out in the “Risks and
uncertainties” section of the “Strategic report” with an
indication of those risks regarded by the directors as
potentially significant together with mitigating and other
relevant considerations for the management of risks.
Financing policies are described on pages 33 and 34 of the
Strategic report and 2017 developments relating to capital
structure are detailed in the “Finance” section of the Strategic
report under “Capital structure”. The directors have set out
their assessment of liquidity and financing adequacy on
pages 32 and 33 of the Strategic report including the actions
either in progress or contemplated in order to ensure
adequate liquidity for the next twelve months.
Based on the foregoing, having made due enquiries, the
directors reasonably expect that the company and the group
have adequate resources to continue in operational existence
for at least twelve months from the date of approval of the
financial statements, and therefore they continue to adopt the
going concern basis of accounting in preparing the financial
statements.
Greenhouse gas emissions (“GHG”)
GHG emissions data for the period 1 January 2016 to
31 December 2017 is as shown below:
Tonnes of CO2e 2017 2016
Gross emissions associated
with oil palm operations
in Indonesia1 663,675 1,033,340
Net emissions associated
with oil palm operations
in Indonesia 287,679 466,939
Net emissions per tonne
of CPO produced 5.38 3.66
Net emissions per
planted hectare 4.95 10.81
Electricity, heat, steam
and cooling purchased
for own use2 57.0 57.3
1 In addition to all material Scope 1 emissions, some Scope 3 emissions
have also been included in this category. Examples include GHG
emissions associated with the manufacture and transport of the
inorganic fertilisers used by, and an estimate of the GHG emissions
associated with, the cultivation of fresh fruit bunches purchased by the
group’s mills from third parties.
2 The Greenhouse Gas Protocol defines direct GHG emissions as
emissions from sources that are owned or controlled by the reporting
entity. These are categorised as Scope 1 emissions. The Protocol
defines indirect GHG emissions as emissions that are a consequence
of the activities of the reporting entity, but occur at sources owned or
controlled by another entity. Indirect GHG emissions are further
categorised into Scope 2 (indirect GHG emissions from the
consumption of purchased electricity, heat and steam) and Scope 3
emissions (all other indirect GHG emissions, such as the extraction
and production of purchased materials and fuel and transport in
vehicles not owned or controlled by the reporting entity). PalmGHG
takes into account all Scope 1 emissions and some Scope 2 and
Scope 3 GHG emissions.
This is the second year that the group has used the PalmGHG
tool (v. 3.0.1), developed by the Roundtable on Sustainable Palm
Oil (“RSPO”), to calculate the carbon footprint of its oil palm
operations in Indonesia in 2017. The PalmGHG tool was
developed by a multi-stakeholder group which included leading
scientists in the field of GHG accounting for oil palm. As of 31
December 2016, all RSPO member palm oil producers have
been required to report publicly their GHG emissions using the
PalmGHG tool, so it is expected that this methodology will
become industry best practice.
Following changes to the PalmGHG methodology, the data
presented above is not directly comparable with that for the
years 2012 to 2016 presented in previous Directors’ reports.
The PalmGHG tool uses a lifecycle assessment approach,
whereby all of the major sources of GHG emissions (carbon
dioxide (CO2), methane (CH4) and nitrous oxide (N2O)) linked
to the cultivation, processing and transport of oil palm
products are quantified and balanced against the carbon
sequestration and GHG emissions’ avoidance as a result of
those processes. All direct and the majority of the indirect
emissions associated with the group’s oil palm operations in
Indonesia are reflected.
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The boundary of calculation includes all three of the group’s
palm oil mills and their supply bases, which is the unit of
calculation for the PalmGHG tool. The boundary for the GHG
emissions’ reporting thus differs from that used for financial
reporting, as the emissions linked to oil palm estates which do
not yet supply fresh fruit bunches to one of the group’s mills
are not directly included. Instead, emissions associated with
the land use change component of new oil palm developments
(which represent the majority of emissions from new
developments) are accumulated over the immaturity period of
each development and then amortised over the 25 year oil
palm lifecycle.
The group has reported both the gross and net GHG
emissions associated with its oil palm operations in Indonesia.
The net GHG emissions were calculated by deducting from
the gross GHG emissions the CO2 that is estimated to have
been fixed (sequestered) by the oil palms and conserved set-
aside forest through the process of photosynthesis. A further
deduction was made to account for the GHG emissions that
have been avoided as a result of the export of renewable
electricity from the group’s methane capture facilities to
domestic buildings and local communities that were previously
supplied with electricity by diesel powered generators.
The group’s net GHG emissions have been expressed per
tonne of CPO produced and per planted hectare (immature
and mature). It is deemed necessary to consider both
measures because the trend in GHG emissions per planted
hectare is not influenced by the maturity of the oil palm within
the supply base, whereas this does impact the GHG emissions
per tonne of CPO.
The group’s Scope 2 emissions are limited to the electricity
purchased by the group’s offices in London, Jakarta and
Samarinda. These GHG emissions are not accounted for in
the PalmGHG methodology. These emissions were therefore
estimated separately by multiplying the amount of electricity
consumed in kilowatt hours by the electricity emission
coefficients for the UK and Indonesia respectively. Since
these emissions are immaterial by comparison with the GHG
emissions associated with the group’s oil palm operations they
have not been included in the net GHG emissions to ensure
that the methodology used to calculate the intensity of the
group’s GHG emissions is consistent with what is likely to
become the standard oil palm industry methodology for
reporting GHG emission intensity.
Control and structure of capital
Details of the company’s share capital and changes in share
capital during 2017 are set out in note (xi) to the company’s
financial statements. At 31 December 2017, the issued
preference share capital and the issued ordinary share capital
represented, respectively, 87.7 and 12.3 per cent of the
nominal value of the total issued share capital.
The rights and obligations attaching to the ordinary and
preference shares are governed by the company’s articles of
association and prevailing legislation. A copy of the articles of
association is available on the company’s website at
www.rea.co.uk. Rights to income and capital are summarised
in note 30 to the company’s financial statements.
On a show of hands at a general meeting of the company,
every holder of shares and every duly appointed proxy of a
holder of shares, in each case being entitled to vote on the
resolution before the meeting, shall have one vote. On a poll,
every holder of shares present in person or by proxy and
entitled to vote on the resolution the subject of the poll shall
have one vote for each share held. Holders of preference
shares are not entitled to vote on a resolution proposed at a
general meeting unless, at the date of notice of the meeting,
the dividend on the preference shares is more than six months
in arrears or the resolution is for the winding up of the
company or is a resolution directly and adversely affecting any
of the rights and privileges attaching to the preference shares.
Deadlines for the exercise of voting rights and for the
appointment of a proxy or proxies to vote in relation to any
resolution to be proposed at a general meeting are governed
by the company’s articles of association and prevailing
legislation and will normally be as detailed in the notes
accompanying the notice of the meeting at which the
resolution is to be proposed.
There are no restrictions on the size of any holding of shares in
the company. Shares may be transferred either through the
CREST system (being the relevant system as defined in the
Uncertificated Securities Regulations 2001 of which Euroclear
UK & Ireland Limited is the operator) where held in
uncertificated form or by instrument of transfer in any usual or
common form duly executed and stamped, subject to
provisions of the company’s articles of association empowering
the directors to refuse to register any transfer of shares where
the shares are not fully paid, the shares are to be transferred
into a joint holding of more than four persons, the transfer is
not appropriately supported by evidence of the right of the
transferor to make the transfer or the transferor is in default in
compliance with a notice served pursuant to section 793 of the
Companies Act 2006. The directors are not aware of any
agreements between shareholders that may result in
restrictions on the transfer of securities or on voting rights.
No person holds securities carrying special rights with regard
to control of the company and there are no arrangements in
which the company co-operates by which financial rights
carried by shares are held by a person other than the holder of
the shares.
The articles of association provide that the business of the
company is to be managed by the directors and empower the
directors to exercise all powers of the company, subject to the
provisions of such articles (which include a provision
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Governance
Directors’ report
continued
specifically limiting the borrowing powers of the group) and
prevailing legislation and subject to such directions as may be
given by the company in general meeting by special resolution.
The articles of association may be amended only by a special
resolution of the company in general meeting and, where such
amendment would modify, abrogate or vary the class rights of
any class of shares, with the consent of that class given in
accordance with the company’s articles of association and
prevailing legislation.
The 7.5 per cent dollar notes 2022 (the “dollar notes”) of the
company and the 8.75 per cent guaranteed sterling notes
2020 (the “sterling notes”) that have been issued by REA
Finance B.V. and guaranteed by the company are transferable
either through the CREST system where held in uncertificated
form or by instrument of transfer. Transfers may be in any
usual or common form duly executed in amounts and
multiples: in the case of the dollar notes of $120,000 and
integral multiples of $1 in excess thereof; and, in the case of
the sterling notes, of £100,000 and integral multiples of
£1,000 in excess thereof. There is no maximum limit on the
size of any holding in each case.
Significant holdings of preference shares, dollar notes and
sterling notes shown by the respective registers of members
and noteholders at 31 December 2017 are set out below.
Preference Dollar Sterling
notes
shares notes
2020
2022
Substantial holders of securities £’000 £’000
£’000
HSBC Global Custody Nominee (UK)
6,867
Limited 641898 acct – –
–
KBC Securities NV Client acct – 5,512
R.E.A. Services Limited* – 2,730
–
State Street Nominees Limited OU61 acct 9,339 7,300 11,051
The Bank of New York
(Nominees) Limited AHIF account – –
Vidaco Nominees Limited CLRLUX acct – 4,039
4,875
–
* The 7.5 per cent dollar notes 2022 held in treasury by the company’s
subsidiary R.E.A. Services Limited have been sold subsequent to the
year end as detailed in note 20.
A change of control of the company would entitle holders of
the sterling notes to require repayment of the notes held by
them as detailed in note 25 to the consolidated financial
statements.
Substantial holders
On 31 December 2017, the company had received
notifications in accordance with chapter 5 of the Disclosure
Rules and Transparency Rules of the Financial Conduct
Authority of the following voting rights held by them as holders
of ordinary shares of the company:
Number Percentage
of of
ordinary voting
Substantial holders of ordinary shares shares rights
Emba Holdings Limited 11,082,420 27.4
Prudential plc and certain subsidiaries* 6,043,129 15.0
Alcatel Bell Pensioenfonds VZW 4,167,049 10.3
Artemis UK Smaller Companies 3,563,620 8.8
Aberforth LLP 2,946,902 7.3
The Capital Group Companies, Inc 2,162,000 5.4
* The company has been notified that the interest of Prudential plc group
of companies includes 6,021,116 ordinary shares (14.9 per cent) in
which M&G Investment Funds 3 is also interested.
The shares held by Emba Holdings Limited (“Emba”) are
included as part of the interest of Richard Robinow shown
under “Statement of directors’ shareholdings” in the Directors’
remuneration report.
During the period from 31 December 2017 to the date of this
report, the company did not receive any further notifications in
accordance with chapter 5 of the Disclosure Rules and
Transparency rules.
The directors are not aware of any agreements between the
company and its directors or between any member of the
group and a group employee that provides for compensation
for loss of office or employment that occurs because of a
takeover bid.
Directors
The directors who served during 2017 (who include all of the
directors proposed for election or re-election) are listed under
“Board of directors” above, which is incorporated by reference
in this “Directors’ report”. Mark Parry resigned as managing
director on 20 February 2017.
David Blackett, John Oakley and Richard Robinow retire at the
forthcoming annual general meeting and, being eligible, offer
themselves for re-election, such retirement being in
compliance with the provisions of the UK Corporate
Governance Code requiring the annual re-election of non-
executive directors who have served for more than nine years.
Resolutions 4, 5 and 6, which are set out in the accompanying
notice of the forthcoming annual general meeting (“the 2018
Notice”) and will be proposed as ordinary resolutions, deal with
the re-election of David Blackett, John Oakley and Richard
Robinow.
Michael St. Clair George, as senior independent non-executive
director, confirms that, following a formal performance
evaluation of the chairman, Mr Blackett’s performance
continues to be effective and to demonstrate his commitment
to the role. Accordingly, Mr St. Clair George together with
fellow non-executive directors recommend the re-election of
Mr Blackett as a non-executive director.
John Oakley and Richard Robinow relinquished their positions
as, respectively, managing director and chairman of the
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company at the end of 2015. However they remain on the
board as non-executive directors and continue to oversee
certain executive matters to the extent necessary to ensure a
smooth transfer of their responsibilities. The group continues
to benefit from John Oakley’s knowledge of agronomical
practices as well as his essential oversight of the development
and implementation of the group’s new information technology
systems. As respects Richard Robinow, his significant family
shareholding in the company supports the development of the
group, particularly with regard to current strategic initiatives.
The chairman confirms that, following a formal evaluation, the
performance of each of the non-executive directors continues
to be effective and recommends each of John Oakley and
Richard Robinow for re-election a non-executive director. The
chairman particularly welcomes the valuable commitment and
extensive experience of all of the directors.
Mark Parry's directorships with the company and all
subsidiaries of the group ceased with effect from 20 February
2017. His employment with the company's Singapore
subsidiary ended on 20 May 2017.
Directors’ indemnities
Qualifying third party indemnity provisions (as defined in
section 234 of the Companies Act 2006) were in force for
the benefit of directors of the company and of other
members of the group throughout 2017 and remain in force
at the date of this report.
Political donations
No political donations were made during the year.
Acquisition of the company’s own shares
The company’s articles of association permit the purchase by
the company of its own shares subject to prevailing legislation
which requires that any such purchase (commonly known as a
“buy-back”), if a market purchase, has been previously
authorised by the company in general meeting and, if not, is
made pursuant to a contract of which the terms have been
authorised by a special resolution of the company in general
meeting.
The company currently holds 132,500 of its ordinary shares of
25p each, representing 0.33 per cent of the called up ordinary
share capital, as treasury shares with the intention that, once a
holding of reasonable size has been accumulated, such
holding be placed with one or more substantial investors on a
basis that, to the extent reasonably possible, broadens the
spread of substantial shareholders in the company. Save to
the extent of this intention, no agreement, arrangement or
understanding exists whereby any ordinary shares acquired
pursuant to the share buy-back authority referred to below will
be transferred to any person.
The directors are seeking renewal at the forthcoming annual
general meeting (resolution 9 set out in the 2018 Notice) of
the buy-back authority granted in 2017 to purchase up to
5,000,000 ordinary shares, on terms that the maximum
number of ordinary shares that may be bought back and held
in treasury at any one time is limited to 400,000 ordinary
shares. The directors may, if it remains appropriate, seek
further annual renewals of this authority at subsequent annual
general meetings. The authorisation being sought will
continue to be utilised only for the limited purpose of buying
back ordinary shares into treasury with the expectation that
the shares bought back will be re-sold when circumstances
permit. The new authority, if provided, will expire on the date
of the annual general meeting to be held in 2019 or on 30
June 2019 (whichever is the earlier).
The renewed buy-back authority is sought on the basis that
the price (exclusive of expenses, if any) that may be paid by
the company for each ordinary share purchased by it will be
not less than £1.00 and not greater than an amount equal to
the higher of: (i) 105 per cent of the average of the middle
market quotations for the ordinary shares in the capital of the
company as derived from the Daily Official List of the London
Stock Exchange for the five business days immediately
preceding the day on which such share is contracted to be
purchased; and (ii) the higher of the last independent trade
and the current highest independent bid on the London Stock
Exchange.
Any ordinary shares held in treasury by the company will
remain listed and form part of the company’s issued ordinary
share capital. However, the company will not be entitled to
attend meetings of the members of the company, exercise any
voting rights attached to such ordinary shares or receive any
dividend or other distribution (save for any issue of bonus
shares). Sales of shares held in treasury will be made from
time to time as investors are found, following which the new
legal owners of the ordinary shares will be entitled to exercise
the usual rights from time to time attaching to such shares and
to receive dividends and other distributions in respect of the
ordinary shares.
The consideration payable by the company for any ordinary
shares purchased by it will come from the distributable
reserves of the company. The proceeds of sale of any ordinary
shares purchased by the company would be credited to
distributable reserves up to the amount of the purchase price
paid by the company for the shares, with any excess over such
price being credited to the share premium account of the
company. Thus, as regards its impact on both cash resources
and distributable reserves, it is intended that exercise of the
share buy-back authority will be broadly neutral.
The company will continue to comply with its obligations under
the Listing Rules of the Financial Conduct Authority (“the
Listing Rules”) in relation to the timing of any share buy-backs
and re-sales of ordinary shares from treasury.
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Governance
Directors’ report
continued
Authorities to allot share capital
At the annual general meeting held on 13 June 2017,
shareholders authorised the directors under the provisions of
section 551 of the Companies Act 2006 to allot ordinary
shares or 9 per cent cumulative preference shares within
specified limits. Replacement authorities are being sought at
the 2018 annual general meeting (resolutions 10 and 11 set
out in the 2018 Notice) to authorise the directors (a) to allot
and to grant rights to subscribe for, or to convert any security
into, ordinary shares in the capital of the company (other than
9 per cent cumulative preference shares) up to an aggregate
nominal amount of £2,372,617 representing 23.5 per cent of
the issued ordinary share capital (excluding treasury shares) at
the date of this report, and (b) to allot and to grant rights to
subscribe for, or to convert any security into, 9 per cent
cumulative preference shares in the capital of the company up
to an aggregate nominal amount of £13,000,000
representing 18.1 per cent of the issued preference share
capital of the company at the date of this report.
The new authorities, if provided, will expire on the date of the
annual general meeting to be held in 2019 or on 30 June
2019 (whichever is the earlier). The directors have no present
intention of exercising these authorities.
Authority to disapply pre-emption rights
Fresh powers are also being sought at the forthcoming annual
general meeting under the provisions of sections 571 and
573 of the Companies Act 2006 to enable the board to make
a rights issue or open offer of ordinary shares to existing
ordinary shareholders without being obliged to comply with
certain technical requirements of the Companies Act 2006
which can create problems with regard to fractions and
overseas shareholders.
In addition, the resolution to provide these powers (resolution
12 set out in the 2018 Notice) will, if passed, empower the
directors to make issues of ordinary shares for cash other
than by way of a rights issue or open offer up to a maximum
nominal amount of £1,009,425 (representing 10 per cent of
the issued ordinary share capital of the company (excluding
treasury shares) at the date of this report).
The foregoing powers (if granted) will expire on the date of
the annual general meeting to be held in 2019 or on 30 June
2019 (whichever is the earlier).
General meeting notice period
At the 2018 annual general meeting a resolution (resolution
13 set out in the 2018 Notice) will be proposed to authorise
the directors to convene a general meeting (other than an
AGM) on 14 clear days’ notice (subject to due compliance
with requirements for electronic voting). The authority will be
effective until the date of the annual general meeting to be
held in 2019 or on 30 June 2019 (whichever is the earlier).
This resolution is proposed following legislation which,
notwithstanding the provisions of the company’s articles of
association and in the absence of specific shareholder
approval of shorter notice, has increased the required notice
period for general meetings of the company to 21 clear days.
While the directors believe that it is sensible to have the
flexibility that the proposed resolution will offer to convene
general meetings on shorter notice than 21 days, this flexibility
will not be used as a matter of routine for such meetings, but
only where use of the flexibility is merited by the business of
the meeting and is thought to be to the advantage of
shareholders as a whole.
Recommendation
The board considers that the proposals to grant the directors
the authorities and powers as detailed under “Acquisition of
the company’s own shares”, “Authorities to allot share capital”
and “Authority to disapply pre-emption rights” above and the
proposal to permit general meetings (other than annual
general meetings) to be held on just 14 clear days’ notice as
detailed under “General meeting notice period” above are all in
the best interests of the company and shareholders as a
whole and accordingly the board recommends that
shareholders vote in favour of resolutions 9 to 13 as set out in
the 2018 Notice.
Directors’ remuneration report
Resolution 2 as set out in the 2018 Notice provides for
approval of the company’s remuneration report regarding the
remuneration of directors as detailed in the “Directors’
remuneration report” below. Resolution 3 as set out in the
2018 Notice provides for approval of the company’s
remuneration policy as set out in the ‘Policy Report’ below and
which is unchanged from the policy approved by shareholders
at the company’s 2015 annual general meeting.
Auditor
Each director of the company at the date of approval of this
report has confirmed that, so far as such director is aware,
there is no relevant audit information of which the company’s
auditor is unaware; and that such director has taken all the
steps that ought to be taken as a director in order to make
himself or herself aware of any relevant audit information and
to establish that the company’s auditor is aware of that
information.
This confirmation is given and should be interpreted in
accordance with the provisions of section 418 of the
Companies Act 2006.
Deloitte LLP have expressed their willingness to continue in
office as auditor and Resolution 7 set out in the 2018 Notice
proposes their re-appointment.
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Disclosure requirements of Listing Rule 9.8.4R
The following table references the location of information
required to be disclosed in accordance with Rule 9.8.4R of the
Listing Rules published by the Financial Conduct Authority.
Listing
Rule
9.8.4(1)
9.8.4(2)
9.8.4(4)
9.8.4(5)
9.8.4(6)
9.8.4(7)
Disclosure requirement
Disclosure in
annual report
Listing
Rule
Disclosure requirement
The amount of interest capitalised dur-
ing the year with an indication of the
amount and treatment of any
related tax relief
Note 8 to the
consolidated
financial
statements
9.8.4(11) Contracts for the provision of services
to the company or any of its
subsidiary undertakings by a
controlling shareholder
Disclosure in
annual report
Not applicable
Not applicable
9.8.4(12) Arrangements under which a
Not applicable
shareholder has waived or agreed to
waive any dividends
Not applicable
9.8.4(13) Where a shareholder has agreed to
waive future dividends
Not applicable
9.8.4(14) Board statement in respect of
Not applicable
relationship agreement with the
controlling shareholder
Not applicable
Not applicable
Not applicable
By order of the board
R.E.A. SERVICES LIMITED
Secretary
26 April 2018
Any information required by Listing
Rules 9.2.18 R (publication of
unaudited financial information)
Details of long-term incentive scheme
as required under LR 9.4.3R (2) (for a
sole director to facilitate recruitment
or retention)
Any arrangements under which a
director has waived or agreed to waive
any emoluments from the
company or any subsidiary
undertaking
Any arrangement under which a
director has agreed to waive future
emoluments
Allotments for cash of equity
securities made during the period
under review otherwise than to the
holders of the company’s equity shares
in proportion to their holdings of such
equity shares and which has not been
specifically authorised by the company’s
shareholders
9.8.4(8)
9.8.4(9)
Allotments of shares for cash by a
major subsidiary of the company
Not applicable
Participation by a parent company in
any placing made by the company
Not applicable
9.8.4(10) Any contract of significance:
(i) to which the listed company, or
one of its subsidiary undertakings,
is a party and in which a director
of the listed company is or was
materially interested; and
(ii) between the listed company, or
one of its subsidiary undertakings,
and a controlling shareholder
Note 38 to the
consolidated
financial
statements
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Governance
Corporate governance report
Throughout the year ended 31 December 2017, the company
was in compliance with the provisions set out in the 2016 UK
Corporate Governance Code issued by the Financial
Reporting Council (the “Code”), save as respects Code
provision C.3.3.1 regarding audit committees, as respects
Code provision B.2.1 regarding nomination committees and as
respects Code provision D.2.1 regarding remuneration
committees for the reasons explained under “Board
committees” below. The Code is available from the Financial
Reporting Council’s website at “www.frc.org.uk”.
Chairman’s statement on corporate governance
The directors appreciate the importance of ensuring that the
group’s affairs are managed effectively and with integrity and
acknowledge that the principles laid down in the Code provide
a widely endorsed model for achieving this. The directors
seek to apply the Code principles in a manner proportionate to
the group’s size but, as the Code permits, reserving the right,
when it is appropriate to the individual circumstances of the
company, not to comply with certain Code principles and to
explain why.
The directors are mindful of proposed revisions to the Code
which are expected to take effect for accounting periods
beginning on or after 1 January 2019 and will pay due regard
to such revisions when published.
At the performance evaluation conducted in 2017, the board
concluded that the board is performing effectively as
constituted and that the complementary skills of individual
board members are appropriate for the size and strategic
direction of the group and for the challenges that it faces. It
was considered that each director brings separate valuable
insights into, variously, the plantation industry, business in
Indonesia and the group’s affairs.
The directors are conscious that the group relies not only on
its shareholders but also on the holders of its debt securities
for the provision of the capital that the group utilises. The
comments below regarding liaison with shareholders apply
equally to liaison with holders of debt securities.
for leadership and management of the board in the discharge
of its duties; the managing director has responsibility for the
executive management of the group overall. Neither has
unfettered powers of decision.
Irene Chia and Michael St. Clair-George are considered by the
board to be independent directors. Further, the Chairman on
appointment was considered to meet the board of directors’
criteria for independence. There is a regular and robust
dialogue, both formal and informal, between all directors and
senior management and communication is open and
constructive and non-executive directors are able to express
their views, speak frankly and raise issues or concerns.
Executive management is responsive to feedback from non-
executive directors and to requests for clarification and
amplification.
The company carries appropriate insurance against legal
action against its directors. The current policy was in place
throughout 2017 in compliance with the Code requirement to
carry such insurance.
Composition of the board
The board currently comprises one executive director and five
non-executive directors (including the chairman). Carol Gysin,
who is based in London, was appointed managing director on
21 February 2017, following the resignation of Mark Parry on
20 February 2017.
Biographical information concerning each of the directors of
the company is set out under “Board of directors” above. The
variety of backgrounds brought to the board by its members
provides perspective and facilitates balanced and effective
strategic planning and decision making for the long-term
success of the company in the context of the company’s
obligations and responsibilities both as the owner of a
business in Indonesia and as a UK listed entity. In particular,
the board believes that the respective skills and experience of
its members complement each other and that their knowledge
and commitment is of specific relevance to the nature and
geographical location of the group’s operations.
Role and responsibilities of the board
The board is responsible for the proper management of the
company. The board has a schedule of matters reserved for
its decision which is kept under review. Such matters include
strategy, material investments and financing decisions and the
appointment or removal of executive directors and the
company secretary. In addition, the board is responsible for
ensuring that resources are adequate to meet the group’s
objectives and for reviewing performance, financial and
operational controls, risk and compliance with the group’s
policies and procedures with respect to business ethics,
human rights, diversity and sustainability.
The chairman and managing director (being the chief
executive) have defined separate responsibilities under the
overall direction of the board. The chairman has responsibility
The group has previously indicated its intention that, over time,
overall executive responsibility for the management of the
group will progressively be transferred from the UK to
Indonesia and Singapore and that, as a consequence, the
group’s London office will be reduced to a secretariat
managing the company’s London listing and liaising with its
European shareholders. In line with this intention, a number of
executive functions have, over the past few years, been
successfully transferred from the UK to Singapore and
Indonesia. However, the group has concluded that it is
important to maintain separation between the responsibilities
of the group managing director and of the person in overall
charge of the group’s Indonesian operations. On that basis,
the group expects that, whilst UK executive functions may well
be further reduced, the group managing director will remain
based in the UK for the foreseeable future.
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Under the company’s articles of association, any director who
has not been appointed or re-appointed at each of the
preceding two annual general meetings shall retire by rotation
and may submit himself for re-election. This has the effect
that each director is subject to re-election at least once every
three years. In addition, in compliance with the Code, non-
executive directors who have served on the board for more
than nine years submit themselves for re-election every year.
Further, any director appointed during the year holds office
until the next annual general meeting and may then submit
himself or herself for re-election.
It is the policy of the company that the board should be
refreshed on the basis that independent non-executive
directors will not normally be proposed for reappointment if, at
the date of reappointment, they have served on the board for
more than nine years.
Directors’ conflicts of interest
In connection with the statutory provisions regarding the
avoidance by directors of situations which conflict or may
conflict with the interests of the company, the board has
approved the continuance of potential conflicts notified by
Richard Robinow, who absented himself from the discussion in
this respect. Such notifications relate to Richard Robinow’s
interests as a shareholder in or a director of companies the
interests of which might conflict with those of the group but
are not at present considered to do so. No other conflicts or
potential conflicts have been notified by directors.
Professional development and advice
In view of their previous relevant experience and, in some
cases, length of service on the board, all directors are familiar
with the financial and operational characteristics of the group’s
activities. Directors are required to ensure that they maintain
that familiarity and keep themselves fully cognisant of the
affairs of the group and matters affecting its operations,
finances and obligations (including environmental, social and
governance responsibilities). Whilst there are no formal
training programmes, the board regularly reviews its own
competences, receives periodic briefings on legal, regulatory,
operational and political developments affecting the group and
may arrange training on specific matters where it is thought to
be required. Directors are able to seek the advice of the
company secretary and, individually or collectively, may take
independent professional advice at the expense of the
company if necessary.
Newly appointed directors receive induction on joining the
board and steps are taken to ensure that they become fully
informed as to the group’s activities.
Information and support
Monthly operational and financial reports are issued to all
directors for their review and comment. These reports are
augmented by monthly management reports, annual budgets
and positional papers on matters of a non routine nature and
by prompt provision of such other information as the board
periodically decides that it should have to facilitate the
discharge of its responsibilities.
Board evaluation
A formal internal evaluation of the performance of the board,
the committees and individual directors is undertaken annually.
Balance of powers, contribution to strategy, efficacy and
accountability to stakeholders are reviewed by the board as a
whole and the performance of the chairman is appraised by
the independent non-executive directors led by the senior
independent director. The appraisal process includes
assessments against a detailed set of criteria covering a
variety of matters from the commitment and contribution of
the board in developing strategy and enforcing disciplined risk
management, pursuing areas of concern, if any, and setting
appropriate commercial and social responsibility objectives to
the adequacy and timeliness of information made available to
the board.
At the performance evaluation conducted in 2017, the board
concluded that it performs effectively as constituted and that
the directors communicate and work well together as a team.
Board committees
The board has appointed audit, nomination and remuneration
committees to undertake certain of the board’s functions, with
written terms of reference which are available for inspection
on the company’s website and are updated as necessary. The
directors are conscious that the board committees do not
meet the independence criteria specified by the Code. This
reflects the desire to maintain a board of a size that is
appropriate to the needs and circumstances of the company,
to retain a suitable balance between independence and recent
and relevant financial or industry experience on each
committee and to avoid unnecessary duplication of the
oversight exercised by the commissioners of PT REA Kaltim
Plantations (the Indonesian sub-holding company of all of the
group’s plantation interests) of which a majority are
independent. The board considers that the independence of
judgement of the audit, nomination and remuneration
committees is not compromised as a consequence of their
current composition.
There is an executive committee of the board, currently
comprising any two of David Blackett, Carol Gysin and Richard
Robinow, to deal with various matters of a routine or executory
nature.
Audit committee
The audit committee reports on its composition and activities
in the “Audit committee report” below. This also provides
information concerning the committee’s relationship with the
external auditor.
R.E.A. Holdings plc Annual Report and Accounts 2017
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Governance
Corporate governance report
continued
Nomination committee
The nomination committee comprises David Blackett
(chairman) and Michael St. Clair-George. The committee is
responsible for submitting recommendations for the
appointment of directors for approval by the full board. In
making such recommendations, the committee pays due
regard to the group’s diversity policy and takes into
consideration the ethos of the company and the specific
nature and location of the group operations. Experience and
understanding of the plantation industry and business in
Indonesia is an important factor in considering a potential
appointment.
Remuneration committee
The remuneration committee reports on its composition and
activities in the “Directors’ remuneration report” below. This
also provides information concerning the remuneration of the
directors and includes details of the basis upon which such
remuneration is determined.
Board proceedings
Four meetings of the board are scheduled each year. Other
board meetings are held as required to consider corporate and
operational matters with all directors consulted in advance
regarding significant matters for consideration and provided
with relevant supporting information. Minutes of board
meetings are circulated to all directors. The managing
director, unless travelling, is normally present at full board
meetings. Where appropriate, telephone discussions take
place between the chairman and the other non-executive
directors outside the formal meetings. Committee meetings
are held as and when required. All proceedings of committee
meetings are reported to the full board.
The attendance of individual directors, who served during
2017, at the regular board meetings held in 2017 is set out
below. There were no ad hoc meetings held in 2017.
Regular
meeting
David Blackett 4
Irene Chia 4
Carol Gysin 4
John Oakley 4
Mark Parry (resigned 20 February 2017) 0
Richard Robinow 4
Michael St. Clair-George 4
In addition, during 2017 there were three meetings of the
audit committee, two meetings of the remuneration committee
and one meeting of the nomination committee. All committee
meetings were attended by all of the committee members
appointed at the time of each meeting.
Whilst all formal decisions are taken at board meetings, the
directors have frequent informal discussions between
themselves and with management and most decisions at
board meetings reflect a consensus that has been reached
ahead of the meetings. One of the directors resides
permanently in the Asia Pacific region and some UK based
directors travel extensively. Since the regular board meetings
are fixed to fit in with the company’s budgeting and reporting
cycle and ad hoc meetings normally have to be held at short
notice to discuss specific matters, it may not always be
practical to fix meeting dates to ensure that all directors are
able to attend each meeting. In the event that a director is
unable to attend a meeting, the company ensures that the
director concerned is fully briefed so that the director’s views
can be made known to other directors ahead of time and be
reported to, and taken into account, at the meeting.
Risk management and internal control
The board is responsible for the group’s system of internal
control and for reviewing its effectiveness. The system is
designed to manage, rather than eliminate, the risk of failure
to achieve business objectives and can only provide
reasonable and not absolute assurance against material
misstatement or loss.
The board has established a continuous process for
identifying, evaluating and managing the principal risks which
the group faces (including risks arising from environmental,
social and governance matters) and considering any such
risks in the context of the group’s overall strategic objectives.
The board regularly reviews the process and internal control
systems, which were in place throughout 2017 and up to the
date of approval of this report, in accordance with the
Financial Reporting Council (“FRC”) Guidance on Risk
Management, Internal Control and Related Financial and
Business Reporting.
The board attaches importance not only to the process
established for controlling risks but also to promoting an
internal culture in which all group staff are conscious of the
risks arising in their particular areas of activity, are open with
each other in their disclosure of such risks and combine
together in seeking to mitigate risk. In particular, the board
has always emphasised the importance of integrity and ethical
dealing and continues to do so, in accordance with the group’s
policies on business ethics and human rights.
Policies and procedures in respect of diversity and anti bribery
and corruption are in place for all of the group’s operations in
Indonesia as well as in the UK. These include detailed
guidelines and reporting requirements, a comprehensive
continuous training programme for all management and
employees and a process for on-going monitoring and review.
In particular, as regards the group’s diversity policy, the group’s
objective is to encourage an open approach to recruitment,
promotion and career development irrespective of age, gender,
national origin or professional background. Applicable policies
are designed to recognise this open approach. Substantial
progress has been made in implementing the diversity policy
as evidenced by the composition of the group board,
Indonesian subsidiary boards and senior management.
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Further analysis is forthcoming in respect of the current
reporting period.
The group also seeks to ensure that its partners abide by its
ethical principles, including those with respect to slavery as set
out in the policy on human rights. The board is in compliance
with the Modern Slavery Act 2015 and has a statement on its
website in relation to modern slavery. Furthermore the group
has initiated measures to ensure that it is compliant with the
General Data Protection Regulation (“GDPR”) which comes
into effect on 25 May 2018.
The board, assisted by the audit committee and the internal
audit process, reviews the effectiveness of the group’s system
of internal control on an on-going basis. The board’s
monitoring covers all controls, including financial, operational
and compliance controls and risk management. It is based
principally on reviewing reports from management (providing
such information as the board requires) and considering
whether significant risks are identified, evaluated, managed
and controlled and whether any significant weaknesses are
promptly remedied or indicate a need for more extensive
monitoring. Details of the internal audit function are provided
under “Internal audit” in the “Audit committee report” below.
As discussed under “Risk management and internal control” in
the “Audit committee report” below, the group has
commissioned a third party review of its Information
Technology control and financial reporting system to ensure
compliance with best practice. Following formal reviews of the
systems of internal control and risk management (including
the group’s internal audit arrangements) in April 2017, the
board concluded that otherwise these remain effective and
sufficient for their purpose.
Internal audit and reporting
The group’s internal audit arrangements are described in the
Audit committee report below.
The group has established a management hierarchy which is
designed to delegate the day to day responsibility for specific
departmental functions within each working location, including
financial, operational and compliance controls and risk
management, to a number of senior managers and
department heads who in turn report to the managing director.
Management reports to the audit committee and the board on
a regular basis by way of the circulation of progress reports,
management reports, budgets and management accounts.
Management is required to seek authority from the board in
respect of any transaction outside the normal course of
trading which is above an approved limit and in respect of any
matter that is likely to have a material impact on the
operations that the transaction concerns. Monthly meetings to
consider operational matters are held in London and Indonesia
and regular meetings are held between the two offices by way
of conference calls. Directors based in London make frequent
visits to the overseas operations each year. The managing
director has a continuous dialogue with the chairman and with
other members of the board.
Relations with shareholders
The “Chairman’s statement” and “Strategic report” above, when
read in conjunction with the financial statements, the
“Directors’ report” above and the “Audit committee report” and
“Directors’ remuneration report” below are designed to present
a comprehensive and understandable assessment of the
group’s position and prospects. The respective responsibilities
of the directors and auditor in connection with the financial
statements are detailed in “Directors’ responsibilities” below
and in the “Auditor’s report”.
The directors endeavour to ensure that there is satisfactory
dialogue, based on mutual understanding, between the
company and its shareholder body. The annual report, interim
communications, periodic press releases and such circular
letters to shareholders as circumstances may require are
intended to keep shareholders informed as to progress in the
operational activities and financial affairs of the group. In
addition, within the limits imposed by considerations of
confidentiality, the company engages with institutional and
other major shareholders through regular meetings and other
contact in order to understand their concerns. The views of
shareholders are communicated to the board as a whole to
ensure that the board maintains a balanced understanding of
shareholder opinions and issues arising.
All ordinary shareholders may attend the company’s annual
and other general meetings and put questions to the board.
As noted above, one director resides permanently in the Asia
Pacific region and the nature of the group’s business requires
that other directors travel frequently to Indonesia. It is
therefore not always feasible for all directors to attend general
meetings, but those directors who are present are available to
talk on an informal basis to shareholders after the meeting’s
conclusion. At least twenty working days’ notice is given of
the annual general meeting and related papers are made
available to shareholders at least twenty working days ahead
of the meeting. For every general meeting, proxy votes are
counted and details of all proxies lodged for each resolution
are reported to the meeting and made available on the
company’s website as soon as practicable after the meeting.
The company maintains its website at “www.rea.co.uk”. The
website has detailed information on, and photographs
illustrating various aspects of, the group’s activities, including
its commitment to sustainability, conservation work and
managing its carbon footprint. The website is updated
regularly and includes information on the company’s share
prices and the price of crude palm oil. The company’s results
and other news releases issued via the London Stock
Exchange’s Regulatory News Service are published on the
“Investors” section of the website and, together with other
relevant documentation concerning the company, are available
for downloading.
Approved by the board on 26 April 2018 and signed on behalf
of the board by
DAVID J BLACKETT
Chairman
R.E.A. Holdings plc Annual Report and Accounts 2017
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Governance
Audit committee report
Summary of the role of the audit committee
Composition of the audit committee
The audit committee currently comprises Michael St. Clair-
George (chairman) and David Blackett both of whom are
considered by the directors to have relevant financial and
professional experience, as well as experience of the business
sector and region in which the company operates, in order to
be able to fulfil their specific duties with respect to the audit
committee.
Meetings
Three audit meetings are scheduled each year to match the
company’s budgeting and reporting cycle. There are additional
ad hoc meetings held to discuss specific matters when
required.
Significant issues related to the financial statements
The committee reviewed the half year financial statements to
30 June 2017 (on which the auditor did not report) and the
full year consolidated financial statements for 2017 (the
“2017 financial statements”) contained in this annual report.
The external audit report on the latter was considered
together with a paper to the committee by the auditor
reporting on the principal audit findings. The audit partner of
Deloitte LLP responsible for the audit of the group attended
the audit planning meeting prior to the year end as well as the
meeting of the committee at which the full year audited
consolidated financial statements were considered and
approved. Senior members of staff of Deloitte LLP who were
involved in the audit also attended the meetings.
In relation to the group’s audited 2017 financial statements,
the committee considered the significant accounting and
judgement issues set out below.
The terms of reference of the audit committee are available
for download from the company’s website at www.rea.co.uk.
The audit committee is responsible for:
•
•
•
•
monitoring the integrity of the financial statements,
reviewing formal announcements of financial
performance and the significant reporting issues and
judgements that such statements and announcements
contain;
reviewing the effectiveness of the internal control
functions (including the internal financial controls and
internal audit function in the context of the company’s
overall risk management system, as well as
arrangements whereby internally raised staff concerns
as to financial reporting and other relevant matters are
considered);
making recommendations to the board in relation to the
appointment, reappointment, removal, remuneration and
terms of engagement of the external auditor, and
overseeing the relationship with and reviewing the audit
findings of the external auditor; and
reviewing and monitoring the independence of the
external auditor and the effectiveness of the audit
process.
The audit committee also monitors the engagement of the
external auditor to perform non-audit work. During 2017, the
only non-audit work undertaken by the auditor was, as in the
previous year, routine compliance reporting in connection with
covenant obligations applicable to certain group loans (as
respects which the governing instruments require that such
compliance reporting is carried out by the auditor) and routine
taxation compliance services. The audit committee considered
that the nature and scope of, and remuneration payable in
respect of, these engagements were such that the
independence and objectivity of the auditor was not impaired.
Fees payable are detailed in note 9 to the consolidated
financial statements.
The members of the audit committee discharge their
responsibilities by formal meetings and informal discussions
between themselves, meetings with the external auditor, with
the internal auditor in Indonesia and with management in
Indonesia and London and by consideration of reports from
management, the Indonesian internal audit function and the
external auditor.
The committee provides advice and recommendations to the
board with respect to the financial statements to ensure that
these offer fair, balanced and comprehensive information for
the purpose of informing and protecting the interests of the
company’s shareholders.
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Governance
Audit committee report
Significant accounting and judgement issues
Issues
Relevant considerations
Assets held for sale: where directors decide to seek
purchasers for non-current assets or a disposal group they are
required by IFRS 5 Non-current assets held for sale and
disposal groups to determine the point at which such assets
should be classified as held for sale and disclosed in the
group financial statements at the lower of its carrying value or
fair value less costs to sell.
The directors have reviewed the principal sequence of events
which culminated on 25 April 2018 with the execution of a
conditional sale agreement for one of the group’s Indonesian
plantation subsidiary companies (PT Putra Bongan Jaya) and
concluded that at 31 December 2017 its sale was not highly
probable and that it did not therefore qualify as an asset held
for sale.
Biological assets: compliance with IAS 41 Agriculture, as
amended, requiring that produce growing on bearer plants, if
capable of reliable measurement, be treated as a separate
asset and carried at fair value.
The group has continued, in the interest of consistency, to
apply the same formulaic methodology for valuing growing
produce based on oil content in growing fresh fruit bunches.
Indonesian tax balances: from time to time the group finds
itself in dispute with the Indonesian tax authorities over the
interpretation of Indonesian tax legislation. Certain disputed
items are currently the subject of cases in appeal courts.
Valuation of stone and coal loans: the value of these loans is
based on their expected future generation of revenue;
following a review in 2012, a provision of $3.0 million was
booked in the 2012 consolidated financial statements.
Each year the group prepares an evaluation of items that may
be disputed and adjusts tax balances as required. Two long
disputed cases which had been found in the group’s favour in
past years remain subject to judicial review by the Supreme
Court of Indonesia, which may take some years. In response
to disputed tax assessments raised in earlier years, it has been
the policy of the group to pay voluntarily the disputed amounts
in order to minimise the extent of interest and penalties in the
event that the group was wholly or partially unsuccessful in its
appeals. Following successful appeals, the tax authorities
have only repaid interest on that part of the disputed
assessment where tax had been paid in compliance with usual
advance payment procedures; only such interest has been
credited to income. Meanwhile, a subsidiary has lodged an
appeal with the Supreme Court to recover the disputed
interest, claims for which have been rejected by the lower
courts.
An Indonesian subsidiary is also in dispute with the tax
authorities over the tax residence of a UK subsidiary; the
Indonesian subsidiary is defending its position robustly.
The group has made further progress towards resumption of
its stone and coal extraction activities. At Kota Bangun, the
group has acquired a company with port facilities on the
Mahakam River immediately adjacent to the concession and
has applied for the necessary licences to export coal.
A potential buyer of the coal stockpile of some 16,000 tonnes
has been identified, as well as a contractor to begin the
rehabilitation of the mine as a preliminary to resuming coal
extraction. A group subsidiary is now taking delivery of
shipments of limestone from a nearby deposit. The group
continues to review options for developing suitable road
access to the andesite stone concession. Meanwhile, current
feasibility studies indicate that the value of such operations
significantly exceeds the loan values and support the
conclusion that no further impairment charge is required.
R.E.A. Holdings plc Annual Report and Accounts 2017
55
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Governance
Audit committee report
continued
Significant accounting and judgement issues
Issues
Relevant considerations
Revenue recognition: compliance with the “bill and hold” sale
revenue recognition requirements of IAS18 “Revenue” and
those relating to forward sales.
Depreciation of land: the group has reviewed the estimated
economic life of its non-current plantation operating assets
with a view to applying appropriate depreciation rates.
There are long-standing operating procedures for the storage
of product where the buyer has requested a delivery delay, and
these comply with IFRS. In addition, the shift of delivery
method over recent years from FOB Samarinda to CIF has
reduced the occurrence and the materiality of this issue. Any
forward sales made by the group are priced relevant to
benchmarks at the time of delivery and so are not at fixed
prices.
In particular, the committee has studied the Indonesian land
tenure law and regulation as applied to oil palm plantations.
The system of awarding land certificates (an “hak guna usaha”
or “HGU”) grants HGUs for an initial long period of time
(35 years) and these can be renewed relatively easily and at
minimal cost for further periods of up to 60 years. All land
rights in the past have always been generally renewed without
issues. Although the current framework is silent on whether
further extensions will be allowed it is the working assumption
of the industry in Indonesia, when considering such matters as
extension planting, that the current HGUs will be extendible
when the time comes. Land suitable for oil palm development
and subject to HGUs can be readily bought and sold.
Indonesian accounting standards prescribe that the costs
associated with acquiring and licensing such land may not be
depreciated. Based on these and other considerations, the
committee has recommended to the directors that the group
no longer depreciates its land titles. This recommendation
constitutes a reappraisal of the economic lives of the land
titles, not a change of accounting policy; accordingly, there is
no change to the accumulated depreciation at 1 January
2017. This is consistent with the practice of other European
groups with oil palm plantations in Indonesia.
The committee will monitor applicable accounting standards
and Indonesian law and regulation which could have an impact
on the assessment of the economic lives of the land titles.
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In its review of the annual report and the consolidated
financial statements, the committee considered management’s
submissions on the matters above, together with the
conclusions reached by the auditor, in order to ensure that the
annual report and the consolidated financial statements are
fair, balanced and understandable and provide sufficient
information to enable shareholders to make an assessment of
the group’s performance, business model and strategy.
External audit
The external auditor was appointed as the company’s external
auditor in 2002. There has been no tender for audit services
since that time. In accordance with the EU Audit Directive and
Audit Regulation, consideration will be given to tendering for
future audits in due course.
Colin Rawlings has been the company’s audit engagement
partner since June 2015.
The audit committee has recommended to the board that it
should seek the approval of the company’s shareholders for
the reappointment of the company’s current auditor. That
recommendation reflects an assessment of the qualifications,
expertise, resources and independence of the auditor based
upon reports produced by the auditor, the committee’s own
dealings with the auditor and feedback from management.
The committee took into account the possibility of the
withdrawal of the auditor from the market and noted that there
were no contractual obligations to restrict the choice of
external auditor. However, given the current level of audit fees,
the limited choice of audit firms with sufficient international
coverage and experience and the costs that a change would
be likely to entail, the committee did not recommend that the
company’s audit be put out to tender.
In its assessment of the external auditor, the audit committee
considered the following criteria:
•
•
•
•
•
delivery of a thorough and efficient audit of the group in
accordance with agreed plans and timescales
provision of accurate, relevant and robust advice on key
accounting and audit judgements, technical issues and
best practice
the degree of professionalism and expertise
demonstrated by the audit staff
sufficient continuity within the core audit team
adherence to independence policies and other
regulatory requirements.
Risk management and internal control
The board of the company has primary responsibility for the
group’s risk management and internal control systems. The
audit committee supervises the internal audit function, which
forms a key component of the control systems, and keeps the
systems of financial, operational and compliance controls
generally under review. Any deficiencies identified are drawn
to the attention of the board.
During the past few years the group has been upgrading its
information technology (IT) systems both as regards the
management of the plantation operations and their integration
into the group’s new accounting and reporting functions, which
went live during 2017. The committee has become aware
that, following implementation, the IT access and control
systems and procedures (which had had to accommodate
many users during the development and implementation
stages) require to be significantly strengthened and the group
is now actively engaged on such work. Separately the group
has recently commissioned an independent review of such
controls and procedures to ensure compliance with best
practice and with the Financial Reporting Council’s code on
Internal Control Management.
Internal audit
The group’s Indonesian operations have a fully staffed in-
house internal audit function supplemented where necessary
by the use of external consultants. The function issues a full
report on each internal audit topic and a summary of the
report is issued to the audit committee. An internal audit
programme is agreed at the beginning of each year and
supplemented by special audits through the year as and when
required by management. In addition, follow-up audits are
undertaken to ensure that the necessary remedial action has
been taken. In the opinion of the audit committee and the
board, there is no need for an internal audit function outside
Indonesia due to the limited nature of the non-Indonesian
operations.
Approved by the audit committee on 26 April 2018 and
signed on behalf of the committee by:
MICHAEL A ST. CLAIR-GEORGE
Chairman
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Governance
Directors’ remuneration report
This report has been prepared in accordance with Schedule 8 of the Large and Medium-sized Companies and Groups
(Accounts and Reports) Regulations 2008 (the “Regulations”) as amended in August 2013. The report is split into three main
sections: the statement by the chairman of the remuneration committee, the annual report on remuneration and the policy
report. The annual report on remuneration provides details of directors’ remuneration during 2017 and certain other
information required by the Regulations. The overall report, excluding the policy report, will be put to an advisory shareholder
vote at the company’s 2018 annual general meeting. The remuneration policy detailed in the policy report is separately subject
to approval at that annual general meeting but is unchanged from the policy that was previously approved at the company’s
2015 annual general meeting.
The Companies Act 2006 requires the auditors to report to shareholders on certain parts of the annual report on remuneration
and to state whether, in their opinion, those parts of the report have been properly prepared in accordance with the Regulations.
The parts of the annual report on remuneration that have been audited are indicated in that report. The statement by the
chairman of the remuneration committee and the policy report are not subject to audit.
Statement by Michael St. Clair-George, chairman of the remuneration committee
The succeeding sections of this directors’ remuneration report cover the activities of the remuneration committee during 2017
and provide information regarding the remuneration of executive and non-executive directors. In particular, the report is
designed to compare the remuneration of directors with the performance of the company.
The policy and principles applied by the remuneration committee in fixing the remuneration of executive directors takes account
of the company’s commercial goals and achievements as well as its sustainability objectives.
In considering bonuses in respect of 2017, the committee confirmed the importance of striking an appropriate balance
between positive and negative factors. In particular, the committee took note of the progress made in improving operational
performance in 2017, following on from the sub-optimal performance in 2016, albeit that the recovery to former standards is
taking time to achieve given the extent of remedial action required across the group’s operations. The committee also
recognised the successful reorganisation of local management during 2017 and the enhanced oversight of the operations and
improved performance and efficiencies that this was facilitating.
The committee reflected these factors in awarding bonuses in respect of 2017 and setting the executive remuneration and
specific objectives for 2018.
The committee believes that remuneration should continue to motivate and reward individual performance in a way that is
consistent with the best long term interests of the company and its shareholders, and, in approving remuneration packages for
2018, considers that it struck an appropriate balance between reward and incentive.
Annual report on remuneration
The information provided below under “Single total figure of remuneration for each director”, “Pension entitlements”, “Scheme
interests awarded during the financial year”, “Directors’ shareholdings” and “Scheme interests” has been audited.
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Single total figure of remuneration for each director
The remuneration of the executive and non-executive directors for 2016 and 2017 was as follows (stated in sterling as all the
directors are remunerated in sterling). There was no remuneration in respect of any long term incentive plan in 2017.
Salary All taxable Annual Other
and fees benefits * bonus** remuneration Total
2017 £’000 £’000 £’000 £’000 £’000
Managing director
C E Gysin (appointed 21 February 2017) 312.9 6.1 81.3 – 400.3
M A Parry (resigned 20 February 2017) 181.9 30.9 – 200.0 412.8
Chairman and non-executive directors
D J Blackett 100.0 – – – 100.0
I Chia 27.0 – – – 27.0
J C Oakley 82.0 18.0 – – 100.0
R M Robinow 100.0 6.5 – – 106.5
M A St. Clair-George 29.5 – – – 29.5
Total 833.3 61.5 81.3 200.0 1,176.1
Salary All taxable Annual Long term
and fees benefits * bonus** incentive Total
2016 £’000 £’000 £’000 £’000 £’000
Managing director
M A Parry 425.1 91.2 101.0 – 617.3
Chairman and non-executive directors
D J Blackett 100.0 – – – 100.0
I Chia 27.0 – – – 27.0
D H R Killick (retired 6 June 2016) 14.8 – – – 14.8
J C Oakley 90.0 19.3 – – 109.3
R M Robinow 100.0 7.2 – – 107.2
M A St. Clair-George (appointed 24 October 2016) 5.6 – – – 5.6
Total 762.5 117.7 101.0 – 981.2
* Types of benefit: company car, medical insurance, overseas rental accommodation
** In respect of the applicable year (awarded in the subsequent year)
Fees paid to Michael St Clair George and David Killick included additional remuneration at the rate of £2,500 per annum in
respect of their membership of the audit committee but reduced in 2016 on a pro rata basis to reflect the period of that year
during which they served as directors.
Pension entitlements
In the past, executive directors were eligible to join the R.E.A. Pension Scheme, a defined benefit scheme of which details are
given in note 37 to the consolidated financial statements. That scheme is now closed to new members and it is no longer the
policy of the company to offer pensionable remuneration to directors, except to the extent as may be or may become required
under local legislation.
Mr Oakley (who was aged 69 at 31 December 2017) is a pensioner member of the scheme. Details of Mr Oakley’s annual
pension entitlement are set out below.
£
In payment at beginning of year 75,095
Increase during the year 871
In payment at end of year 75,966
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Governance
Directors’ remuneration report
continued
Scheme interests awarded during the financial year
There were no scheme interests awarded during the financial year. Upon the resignation of Mark Parry on 20 February 2017, all
scheme interests previously awarded to Mr Parry under the Long Term Incentive scheme lapsed.
Payment for loss of office
Pursuant to a resolution approved by the company shareholders at the 2017 Annual General Meeting, Mark Parry, following his
resignation on 20 February 2017, received an ex gratia payment of £200,000 and a contribution of £15,000 plus VAT towards
reasonable legal fees incurred by him with regard to these arrangements.
Directors’ shareholdings
There is no requirement for directors to hold shares in the company.
At 31 December 2017, the interests of directors (including interests of connected persons as defined in section 96B (2) of the
Financial Services and Markets Act 2000 of which the company is, or ought upon reasonable enquiry to have been, aware) in the
9 per cent cumulative preference shares of £1 each and the ordinary shares of 25p each of the company were as set out in the
table below.
Preference Ordinary
Directors shares shares
D J Blackett 250,600 10,000
I Chia – 1,000
C E Gysin (appointed 21 February 2017) 91,957 1,132
J C Oakley – 442,493
R M Robinow – 11,082,420
M A St. Clair-George (appointed 24 October 2016) 2,108 10,149
There have been no changes in the interests of the directors between 31 December 2017 and the date of this report.
Scheme interests
No director currently holds any scheme interests in ordinary shares.
A long term incentive plan (the “2015 plan”) was approved by shareholders in June 2015. The 2015 plan is linked to the
market price performance of ordinary shares in the company, designed with a view to participation over the long term in value
created for the group.
Under the 2015 plan, participants are awarded potential entitlements over notional ordinary shares of the company. These
potential entitlements then vest to an extent that is dependent upon the achievement of certain targets. Vested entitlements
are exercisable in whole or part at any time within the six years following the date upon which they vested. On exercising a
vested entitlement, a participant receives a cash amount for each ordinary share over which the entitlement is exercised, equal
to the excess (if any) of the market price of an ordinary share on the date of exercise over the price at which the entitlement
was granted, subject to adjustment for subsequent variations in the share capital of the company in accordance with the rules
of the plan.
The plan provides that the vesting of the participant’s potential entitlements to notional ordinary shares be determined by key
performance targets with each performance target measured on a cumulative basis over a designated performance period.
Targets for any award made under the 2015 plan are subject to adjustment at the discretion of the remuneration committee
where, in the committee’s opinion, warranted by actual performance.
The exercise of vested entitlements depends upon continued employment with the group. If the participant leaves, he may
exercise a vested entitlement within six months of leaving.
In the event of a change in control of the company as a result of a takeover offer or similar corporate event, vested entitlements
would be exercisable for a period of one month following the date of the change of control or other relevant event (as determined
by the remuneration committee).
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Performance graph and managing director remuneration table
The following graph shows the company’s performance, measured by total shareholder return, compared with the performance
of the FTSE All Share Index also measured by total shareholder return. The FTSE All Share index has been selected for this
comparison as there is no index available that is specific to the activities of the company.
450
400
350
300
250
200
150
100
50
0
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
R.E.A
FTSE
Record of remuneration of the managing director
The table below provides details of the remuneration of the managing director over the five years to 31 December 2017.
Long term
incentive
Annual bonus vesting rates
Single figure of pay-out against
total against maximum
remuneration maximum opportunity
Managing director’s remuneration £’000 % %
2017 C E Gysin (for the period 21 February to 31 December 2017) 400.3 100 N/A
2017 M A Parry (for the period 1 January to 20 February 2017) 412.8 N/A N/A
2016 M A Parry 617.3 92 N/A
2015 M A Parry 541.7 88 N/A
2015 J C Oakley 473.9 60 N/A
2014 J C Oakley 453.3 67 N/A
2013 J C Oakley 488.8 65 N/A
Percentage change in remuneration of the managing director
The table below shows the percentage changes in the remuneration of the managing director and in the average remuneration of
certain senior management and executives in Indonesia and Singapore between 2016 and 2017. The selected comparator
employee group is considered to be the most relevant taking into consideration the nature and location of the group’s operations.
Using the entire employee group would involve comparison with a workforce in Indonesia, whose terms and conditions are
substantially different from those pertaining to employment in the UK and Singapore of which the changes from year to year
reflect local employment conditions. In order to achieve a meaningful comparison, the 2016 remuneration of the selected
comparator employee group has been restated to reflect only the remuneration in that year of those employees comprising the
2017 selected comparator employee group. The 2016 remuneration of the selected group has also been restated at prevailing
average exchange rates for 2017 so as to eliminate distortions based on exchange rate movements of the Indonesian rupiah, US
dollar and Singapore dollar against sterling.
R.E.A. Holdings plc Annual Report and Accounts 2017
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Governance
Directors’ remuneration report
continued
Mark Parry (resigned 20 February 2017) and Carol Gysin (appointed 21 February 2017) 2017 2016 change
Percentage change in managing director’s remuneration £’000 £’000 %
Salary 338.2 425.1 (20)
Benefits 13.0 91.2 (86)
Annual bonus 81.3 101.0 (20)
Total 432.5 617.3 (30)
The 2017 remuneration above is the aggregate of Mark Parry’s remuneration for one month and Carol Gysin’s remuneration for
11 months. The remuneration for the purpose of the table excludes the loss of office payment to Mark Parry of £200,000.
Percentage change in selected employee group remuneration £’000 £’000 %
Salary 241.5 168.2 44
Benefits 9.7 6.8 43
Annual bonus 34.9 48.7 (28)
Total 286.1 223.7 28
Relative importance of spend on pay
The graph below shows the movements between 2016 and 2017 in total employee remuneration, cost of goods sold and
ordinary and preference dividends. Cost of goods sold has been selected as an appropriate comparator as it provides a
reasonable measure of the growth in the group’s activities.
$’000
90,000
80,000
70,000
60,000
50,000
40,000
30,000
20,000
10,000
0
20%
30%
2016
2017
Total employee remuneration
2016
2017
Cost of goods sold
2016
2017
Ordinary and preference dividends
5%
Functions of the remuneration committee
The remuneration committee currently comprises two independent non-executive directors, Michael St. Clair-George (chairman)
and David Blackett. The committee sets the remuneration and benefits of the executive directors. The committee is also
responsible for long term incentive arrangements, if any, for key senior executives in Indonesia.
The committee does not use independent consultants but takes into consideration external guidance, including the annual
publication by Deloitte LLP regarding directors’ remuneration in smaller companies. The chairman plays no part in the
discussion of his own remuneration, which is a matter for determination between the other member of the committee and
fellow directors.
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Service contracts of directors standing for re-election
David Blackett, John Oakley and Richard Robinow are proposed for re-election or election, as applicable, at the forthcoming
annual general meeting. All the non-executive directors have a contract for services to the company which is terminable at will
by either party. Continuation of their appointment depends upon satisfactory performance and re-election at annual general
meetings in accordance with the articles of association of the company.
Statement of voting at general meeting
At the annual general meeting held on 12 June 2017, votes lodged by proxy in respect of the resolution to approve the 2016
directors’ remuneration report were as follows:
Votes Percentage Votes Percentage Total Votes
for for against against votes cast withheld
Voting on remuneration report 29,862,991 99.99 275 0.01 29,886,447 0
The company pays due attention to voting outcomes. Where there are substantial votes against resolutions in relation to
directors’ remuneration, the reasons for any such vote will be sought, and any actions in response will be detailed in the next
directors’ remuneration report.
Policy Report
The information provided in this part of the directors’ remuneration report is not subject to audit.
The remuneration policy detailed below is subject to approval at the company’s 2018 annual general meeting on 13 June 2018
in accordance with the Companies Act 2006 (Strategic Report and Directors Report) Regulations 2013 requiring all
companies to put their remuneration policy to shareholders for approval at least every three years. The policy proposed for
approval is unchanged from the policy approved by shareholders at the company’s 2015 annual general meeting. The
remuneration of directors approved in respect of 2018 is consistent with this policy.
Future policy tables
The table below provides a summary of the key components that it will in future be the policy of the company to provide in the
remuneration package of each executive director. It is not the policy of the company to provide for possible recovery after
payment of directors’ remuneration except in respect of awards, if any, under the 2015 long term incentive plan.
Purpose
Operation
Opportunity
Executive directors
Applicable performance
measures
Within the second or third
quartile for similar sized
companies
None
Salary and
fees
To provide a competitive
level of fixed remuneration
aligned to market practice
for comparable
organisations, reflecting the
demands, seniority and
location of the position and
the expected contribution
to achievement of the
company’s strategic
objectives
Reviewed annually with
annual increases effective
from 1 January by
reference to: the rate of
inflation, specific
responsibilities and
location of the executive,
current market rates for
comparable organisations,
rates for senior employees
and staff across the
operations, and allowing
for differences in
remuneration applicable to
different geographical
locations
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Governance
Directors’ remuneration report
continued
Purpose
Operation
Opportunity
Applicable performance
measures
Executive directors
Taxable
benefits
To attract, motivate, retain
and reward fairly individuals
of suitable calibre
Annual
bonus
To incentivise performance
over a 12 month period,
based on achievements
linked to the company’s
strategic objectives
Company car; and, where
relevant, other benefits
customarily provided to
equivalent senior
management in their
country of residence
Annual review of
performance measured
against prior year progress
in corporate development,
both commercial and
financial, and including
objectives relating to
sustainability and
governance
None
The cost of providing the
appropriate benefits,
subject to regular review
to ensure that such costs
are competitive
Up to a maximum of 50
per cent of annual base
salary
Long term
incentives
To provide incentives, linked
to ordinary shares, with a
view to participation by the
director over the long term
in the value that a director
helps to create for the
group
The grant of rights to
acquire shares or to
receive cash payments
vesting by reference to the
achievement over a
defined period of certain
key performance targets
Cumulative unvested
awards, measured at face
value on dates of grant,
limited to 150 per cent of
prevailing annual base
salary (200 per cent in
exceptional
circumstances)
A range of objectives for the
respective director, reflecting
specific goals for the
relevant year, with weighting
assessed annually on a
discretionary basis
depending upon the
dominant influences during
the year to which a bonus
relates
Total shareholder return,
cost per tonne of crude
palm oil produced, and the
annual extension planting
rate achieved in
proportions considered at
the remuneration
committee’s discretion
appropriate to the
company’s objectives at the
time of making any award
Pensions
Compliance with prevailing
legislation
Compliance with prevailing
legislation
Compliance with
prevailing legislation
None
Non-executive directors
Fees
To attract and retain
individuals with suitable
knowledge and experience
to serve as directors of a
listed UK company
engaged in the plantation
business in Indonesia
Fees for
additional
duties
An additional flat fee in
each year in respect of
membership of certain
committees and additional
fees in respect of particular
services performed
Taxable
benefits
Continuance of previously
agreed arrangements
Determined by the board
within the limits set by the
articles of association and
by reference to
comparable organisations
and to the time
commitment expected;
reviewed annually
Determined by the board
having regard to the time
commitment expected and
with no director taking part
in the determination of
such additional
remuneration in respect of
himself; reviewed annually
The provision of private
medical insurance, subject
to regular review to ensure
that the cost is competitive
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The policies on remuneration set out above in respect of executive directors are applied generally to the senior management and
executives of the group but adjusted appropriately to reflect the position, role and location of an individual. Remuneration of other
employees, almost all of whom are based in Indonesia, is based on local and industry benchmarks for basic salaries and benefits,
subject as a minimum to an annual inflationary adjustment, and with additional performance incentives as and where this is
appropriate to the nature of the role.
Where any arrangements have been agreed with a director within the existing policies on remuneration, such arrangements shall
be deemed to be arrangements falling within the new policy on remuneration set out above.
Approach to recruitment remuneration
In setting the remuneration package for a newly appointed executive director, the committee will apply the policy set out above.
Base salary and bonuses, if any, will be set at levels appropriate to the role and the experience of the director being appointed
and, together with any benefits to be included in the remuneration package, will also take account of the geographical location in
which the executive is to be based. The maximum variable incentive which may be awarded by way of annual bonus will be
50 per cent of the annual base salary and by way of long term incentive will be 150 per cent of annual base salary, except in
exceptional circumstances when the maximum long term incentive would be 200 per cent of annual base salary.
In instances where a new executive is to be domiciled outside the United Kingdom, the company may provide certain relocation
benefits to be determined as appropriate on a case by case basis taking account of the specific circumstances and costs
associated with such relocation.
Directors’ service agreements and letters of appointment
The company’s policy on directors’ service contracts is that contracts should have a notice period of not more than one year and a
maximum termination payment not exceeding one year’s salary. No director has a service contract that is not fully compliant with
this policy.
Contracts for the services of non-executive directors may be terminated at the will of either party, with fees payable only to the
extent accrued to the date of termination. Continuation of the appointment of each non-executive director depends upon
satisfactory performance and re-election at annual general meetings in accordance with the articles of association of the
company and the provisions of the UK Corporate Governance Code.
Carol Gysin’s service agreement, effective from 1 February 2017, states that the appointment shall continue until it automatically
terminates on 31 January 2021 without the need for notice unless it is previously terminated by either party giving the other at
least 12 months' prior written notice expiring before 31 January 2021. As at the date of this report, the unexpired term under
Carol Gysin’s contract was 12 months.
Illustration of application of remuneration policy
The charts below provide estimates of the potential remuneration receivable pursuant to the remuneration policy by the managing
director (being the only executive director) and the potential split of such remuneration between its different components (being
the fixed component, the annual variable component and the long term variable component) under three different performance
scenarios: minimum, in line with expectations and maximum. The long term variable component in respect of 2017 is nil.
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Governance
Directors’ remuneration report
continued
Managing director
500
400
300
200
100
0
366
406
325
12.5%
25%
100%
87.5%
75%
Minimum
remuneration
receivable
In line with
expectations
Maximum
remuneration
receivable
Fixed pay Annual bonus
The figures reflected in the chart above have been calculated against the policies that were applicable throughout 2017 and on
the basis of remuneration payable in respect of 2018.
Payment for loss of office
It is not company policy to include provisions in directors’ service contracts for compensation for early termination beyond
providing for an entitlement to a payment in lieu of notice if due notice is not given.
The company may cover the reasonable cost of repatriation of any expatriate executive director and the director’s spouse in the
event of termination of appointment, other than for reasons of misconduct, and provided that the move back to the director’s
home country takes place within a reasonable period of such termination.
Consideration of employment conditions elsewhere in the company
In setting the remuneration of executive directors, regard will be had to the levels of remuneration of expatriate employees
overseas and to the increments granted to employees operating in the same location as the relevant director. Employee views
are not specifically sought in determining this policy. Employee salaries will normally be subject to the same inflationary
adjustment as the salaries of executive directors in their respective locations.
Shareholder views
Shareholders are not specifically consulted on the remuneration policy of the company. Shareholders who have expressed views
on remuneration have supported the company’s policies and the application of those policies to date. Were a significant
shareholder to express a particular concern regarding any aspect of the policy, the views expressed would be carefully weighed.
Approved by the board on 26 April 2018 and
signed on behalf of the board by
MICHAEL A ST. CLAIR-GEORGE
Chairman of the remuneration committee
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Governance
Directors’ responsibilities
The directors are responsible for preparing the annual report
and the financial statements in accordance with applicable law
and regulations.
UK company law requires the directors to prepare financial
statements for each financial year. The directors are required
to prepare the group financial statements in accordance with
International Financial Reporting Standards (“IFRS”) as
adopted by the European Union (the “EU”) and Article 4 of the
IAS Regulation and have also elected from 2013 to prepare
the parent company financial statements in accordance with
IFRSs as adopted by the EU. Under company law, the
directors must not approve the accounts unless they are
satisfied that they give a true and fair view of the state of
affairs of the company and of the profit or loss of the company
for that period.
In preparing these financial statements, the directors are
required to:
•
•
•
•
properly select and apply accounting policies;
present information, including accounting policies, in a
manner that provides relevant, reliable, comparable and
understandable information;
provide additional disclosure when compliance with the
specific requirements in IFRS is insufficient to enable
users to understand the impact of particular
transactions, other events and conditions on the entity’s
financial position and financial performance; and
make an assessment of the company’s ability to
continue as a going concern.
The directors are responsible for keeping adequate
accounting records that are sufficient to show and explain the
company’s transactions and disclose with reasonable accuracy
at any time the financial position of the company and enable
them to ensure that the financial statements comply with the
Companies Act 2006. They are also responsible for
safeguarding the assets of the company and hence for taking
reasonable steps for the prevention and detection of fraud and
other irregularities.
The directors are responsible for the maintenance and
integrity of the corporate and financial information included on
the company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
Responsibility statement
To the best of the knowledge of each of the directors:
•
•
•
the financial statements, prepared in accordance with
International Financial Reporting Standards, give a true
and fair view of the assets, liabilities, financial position
and profit or loss of the company and the undertakings
included in the consolidation taken as a whole;
the “Strategic report” section of this annual report
includes a fair review of the development and
performance of the business and the position of the
company and the undertakings included in the
consolidation taken as a whole, together with a
description of the principal risks and uncertainties that
they face; and
the annual report and financial statements, taken as a
whole, are fair, balanced and understandable and provide
the information necessary for shareholders to assess the
company’s performance, business model and strategy.
By order of the board
R.E.A. SERVICES LIMITED
26 April 2018
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc
Report on the audit of the financial statements
Opinion
In our opinion:
•
the financial statements give a true and fair view of the state of the group’s and of the parent company’s affairs as at
31 December 2017 and of the group’s loss for the year then ended;
the group financial statements have been properly prepared in accordance with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and IFRSs as issued by the International Accounting Standards
Board (IASB);
the parent company financial statements have been properly prepared in accordance with IFRSs as adopted by the
European Union and as applied in accordance with the provisions of the Companies Act 2006; and
the financial statements have been prepared in accordance with the requirements of the Companies Act 2006 and, as
regards the group financial statements, Article 4 of the IAS Regulation.
•
•
•
We have audited the financial statements of R.E.A. Holdings plc (the ‘parent company’) and its subsidiaries (the ‘group’) which
comprise:
•
•
•
•
•
•
the Consolidated Income Statement;
the Consolidated and Parent Company Balance Sheets;
the Consolidated and Parent Company Statements of Changes in Equity;
the Consolidated and Parent Company Cash Flow Statements;
the Statement of Accounting Policies; and
the related notes 1 to 43 to the Consolidated financial statements and notes i to xix to the Company financial statements.
The financial reporting framework that has been applied in their preparation is applicable law and IFRSs as adopted by the
European Union and, as regards the parent company financial statements, as applied in accordance with the provisions of the
Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our
responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the financial
statements section of our report.
We are independent of the group and the parent company in accordance with the ethical requirements that are relevant to our
audit of the financial statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and
we have fulfilled our other ethical responsibilities in accordance with these requirements. We confirm that the non-audit services
prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
Summary of our audit approach
Key audit matters
Materiality
Scoping
Plantation assets valuation
Investments in stone and coal
Sun 6 accounting system implementation
The key audit matters that we identified in the current year were:
•
•
•
The plantation assets valuation and the investments in stone and coal key audit matters included
within this report were also considered key audit matters in the prior period.
Due to a number of tax matters in respect of old years being settled with Indonesian tax authorities
in recent years we have decided to remove Indonesian tax liabilities as a key audit matter as we now
consider the risk to be lower than previously.
The materiality that we used for the group financial statements was $7.3m which was determined
on the basis of 1.75% of plantation assets.
The scope of our audit of the group remains unchanged from the previous year. We continue to
focus our group audit scope primarily on the audit work of the 7 largest plantation entities and the 3
UK based entities, all of which were subject to full scope audits.
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Significant changes in
our approach
The most significant change to our audit approach compared to the previous period is with regard to
procedures on plantation assets. Procedures performed in 2016 focused on the implementation of
the revised IAS 41 standard. In 2017 the focus of our procedures has changed to the assignation of
PPE additions to the correct asset class.
Conclusions relating to going concern, principal risks and viability statements
We confirm that we have nothing material to report, add
or draw attention to in respect of these matters.
We confirm that we have nothing material to report, add
or draw attention to in respect of these matters.
Going concern
We have reviewed the directors’ statement on page 44 to the
financial statements about whether they considered it
appropriate to adopt the going concern basis of accounting
in preparing them and their identification of any material
uncertainties to the group’s and company’s ability to continue
to do so over a period of at least twelve months from the
date of approval of the financial statements.
We are required to state whether we have anything material
to add or draw attention to in relation to that statement
required by Listing Rule 9.8.6R(3) and report if the statement
is materially inconsistent with our knowledge obtained in the
audit.
Principal risks and viability statement
Based solely on reading the directors’ statements and
considering whether they were consistent with the
knowledge we obtained in the course of the audit, including
the knowledge obtained in the evaluation of the directors’
assessment of the group’s and the company’s ability to
continue as a going concern, we are required to state
whether we have anything material to add or draw attention
to in relation to:
•
•
•
the disclosures on pages 36 to 41 that describe the
principal risks and explain how they are being managed
or mitigated;
the directors' confirmation on page 44 that they have
carried out a robust assessment of the principal risks
facing the group, including those that would threaten its
business model, future performance, solvency or
liquidity; or
the directors’ explanation on pages 43 and 44 as to
how they have assessed the prospects of the group,
over what period they have done so and why they
consider that period to be appropriate, and their
statement as to whether they have a reasonable
expectation that the group will be able to continue in
operation and meet its liabilities as they fall due over
the period of their assessment, including any related
disclosures drawing attention to any necessary
qualifications or assumptions.
We are also required to report whether the directors’
statement relating to the prospects of the group required by
Listing Rule 9.8.6R(3) is materially inconsistent with our
knowledge obtained in the audit.
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
Key audit matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial
statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to
fraud) that we identified. These matters included those which had the greatest effect on: the overall audit strategy, the allocation
of resources in the audit; and directing the efforts of the engagement team.
These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.
Plantation Assets Valuation
Key audit matter
description
Plantation assets disclosed within property plant and equipment comprise predominantly ‘plantings’ and
‘buildings and structures’. Due to the size and importance of these assets to the group, we identified a
key audit matter relating to the capitalisation and classification of costs into plantation assets.
There is a risk of potential fraud in incorrectly classifying capitalised costs into classes of property,
plant and equipment. The calculation of the split is complex and the methodology judgmental.
Plantings are depreciated over a useful economic life of 24 years while building and structures are
depreciated over a useful economic life of up to 67 years (page 83). Incorrect classification of
capitalised costs between these two asset classes could lead to a material difference to the
carrying value of fixed assets in future years.
At 31 December 2017 the carrying value of plantings is $174.4m and the carrying value of
buildings and structures is $242.3m. The value of additions in the period to plantings is $11.5m
and to buildings and structures is $17.6m (note 14)
How the scope of our
audit responded to the
key audit matter
Our work on the split of deemed cost between asset classes has included:
•
Reviewing the nature of the costs which have been capitalised to assess whether they are
appropriate;
Challenging the split of costs between plantings and buildings and structures, by reference to
the testing of capitalised additions to immature plantations performed by our component audit
team in Indonesia, our knowledge of the business and our interpretation of the revised IAS 41
standard;
Challenge if the plantings and buildings and structures are being depreciated over
appropriate useful economic lives, by comparing to scientific literature, the licensing
agreements and future land rights; and
Assessing the carrying value of plantings and buildings and structures for impairment as
required by IAS 16 on an individual plantation (CGU) basis by creating an independent
estimate for the recoverable amount of each CGU and comparing to the carrying value of
plantings and buildings and structures for each.
•
•
•
Key observations
Based on the audit evidence obtained from the work performed above, we conclude that the
valuation of growing produce and the split of cost between the plantings and buildings and
structures asset classes is appropriate.
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Investments in stone and coal
Key audit matter
description
The group holds loans made to stone and coal concessions in Indonesia for which control is outside
of the group and which are discussed in the audit committee report on page 55. The recoverability
of these loans rely on certain assumptions and estimates in relation to the likelihood of the
underlying investments generating suitable future profits. These have the potential to be subject to
management bias and include the discount rate, the timing of commencement of future mining
operations and expected commodity sale prices.
At 31 December 2017 the carrying value of the loans was $37.9m, an increase from $37.2m at
31 December 2016 (note 16, and the accounting policy is disclosed in note 1).
During 2014, the concessions’ management guaranteed the value of the two coal concessions
using the ATP stone concession. As such even though the coal operations were suspended, and
continue to be suspended in 2017, the group did not impair the loans to the coal concessions.
How the scope of our
audit responded to the
key audit matter
We have focused our procedures on the ATP Andesite stone discounted cash flow forecast. The
forecast calculated a value in use sufficient to justify the carrying value of all of the stone and coal
loans. Our procedures included:
•
•
Agreement of total stone reserves to external third party evidence;
Challenge of the discount rates used by management, terminal growth rates and the forecast
figures used and the assumptions in the DCF;
Checks of the numerical accuracy of the DCF;
Detailed sensitivity analysis to assess the outcome of a change in variables such as price,
discount rates and production volume to determine the critical variables in the model; and
Challenge over the expected price of stone to be used in the valuation by comparison to
recent price quotes and expected increases in demand, and expenses in the profit margin per
year used within the calculation.
•
•
•
Key observations
We are satisfied the value of the stone and coal loans as per the value in use calculation performed
by management is reasonable.
Sun 6 accounting system implementation
Key audit matter
description
Management implemented a new accounting ledger, SUN 6, for use by Indonesian planation
companies and the group consolidation performed in the UK.
As part of the planned audit approach, Deloitte IT specialists in Indonesia assessed the migration of
the accounting ledger onto SUN and the effectiveness of general IT controls around the system.
While the data migration was successful, we assessed the general IT controls at the infrastructure
level as not being designed and implemented to the standard we would expect for a group of this
scale and complexity. These weaknesses in the group’s controls and financial reporting system
increase the likelihood of error or misstatement in the financial statements.
R.E.A. Holdings plc Annual Report and Accounts 2017
71
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
How the scope of our
audit responded to the
key audit matter
As a result of our findings, we have increased the scope of our work. We have performed the
following additional procedures:
•
•
Reduced our performance materiality from $4.4m to $3.7m;
Increased the scope of our journal entry testing, to include additional tests to identify
potentially fraudulent journals;
Extended the scope of our substantive procedures to test the consolidation schedule which is
produced within the Sun 6 accounting system.
•
Key observations
We completed our procedures related to the consolidation and journal entries satisfactorily. As
disclosed on page 40 management are considering commissioning an independent IT specialist to
review the IT controls around the Sun 6 accounting system, with a view to strengthening the control
environment in 2018.
Our application of materiality
We define materiality as the magnitude of misstatement in the financial statements that makes it probable that the economic
decisions of a reasonably knowledgeable person would be changed or influenced. We use materiality both in planning the scope
of our audit work and in evaluating the results of our work.
Based on our professional judgement, we determined materiality for the financial statements as a whole as follows:
Group financial statements
Parent company financial statements
Materiality
$7.3m (2016: $6.5m)
$5.9m (2016: $5.9m)
Basis for determining
materiality
Rationale for the
benchmark applied
1.75% of plantation assets. (2016 2% of
plantation assets)
We have defined planation assets as the sum of:
•
•
•
Plantings - $173m – note 14
Buildings & Structures - $242m – note 14
Biological Assets - $2m – note 19
We consider that the valuation of plantation
assets is a key indicator for the current and
future performance of the company. It is the KPI
of critical interest to users of the financial
statements of R.E.A. Holdings plc as it is the key
measure of the company’s success in developing
its palm oil plantations.
3% of net assets (2016: 3% of net assets)
The parent company is a holding company whose
purpose is to consolidate the active
trading entities and a number of other group
companies. We consider net assets to be the
most important balance to the users of the
financial statements.
We determine performance materiality at a level lower than materiality to reduce the probability that, in aggregate, uncorrected
and undetected misstatements exceed materiality for the financial statements as a whole. As discussed in the key audit matter
relating to the Sun accounting system discussed above, we set Group performance materiality at $3.7m which is approximately
50% of group materiality.
We agreed with the Audit Committee that we would report to the Committee all audit differences in excess of $250k (2016:
$250k) for the group and $250k (2016: $250k) for the parent company, as well as differences below that threshold that, in
our view, warranted reporting on qualitative grounds. We also report to the Audit Committee on disclosure matters that we
identified when assessing the overall presentation of the financial statements.
An overview of the scope of our audit
Our group audit was scoped by obtaining an understanding of the group and its environment, including group-wide controls,
and assessing the risks of material misstatement at the group level. Based on that assessment, we focused on the full scope
audit work of 10 active legal entities, all of which were subject to full scope audits. The 10 active legal entities include 7
Indonesian plantation companies and 3 UK holding or services companies.
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The audit of the 7 plantation companies has been performed by a Deloitte Indonesia component team. The UK group team
have been involved in the planning, risk assessment, performing and reviewing stages of the component audit. The group
audit team continued to follow a programme of planned visits to Indonesia that has been designed so that appropriately
qualified members of the group audit team visit the group’s operations and component auditors in Indonesia annually and visit
the plantation estates at least once every three years, with the most recent visit to the plantations begin in April 2017.
These 10 entities represent the principal business activities and account for 97% (2016: 98%) of the group’s net assets,
100% (2016: 100%) of the group’s revenue and 96% (2016: 98%) of the group’s loss before tax.
They were also selected to provide an appropriate basis for undertaking audit work to address the risks of material
misstatement identified above. Our audit work at the 10 active legal entities was executed at levels of materiality applicable
to each individual entity which were lower than group materiality and ranged from $3.5m to $6.0m (2016: $3.2m to $4.5m).
At the parent entity level we also tested the consolidation process and carried out analytical procedures to confirm our
conclusion that there were no significant risks of material misstatement of the aggregated financial information of the
remaining components not subject to audit or audit of specified account balances.
We have nothing to report in respect of these matters.
Other information
The directors are responsible for the other information. The
other information comprises the information included in the
annual report and accounts other than the financial
statements and our auditor’s report thereon.
Our opinion on the financial statements does not cover the
other information and, except to the extent otherwise
explicitly stated in our report, we do not express any form of
assurance conclusion thereon.
In connection with our audit of the financial statements, our
responsibility is to read the other information and, in doing
so, consider whether the other information is materially
inconsistent with the financial statements or our knowledge
obtained in the audit or otherwise appears to be materially
misstated.
If we identify such material inconsistencies or apparent
material misstatements, we are required to determine
whether there is a material misstatement in the financial
statements or a material misstatement of the other
information. If, based on the work we have performed, we
conclude that there is a material misstatement of this other
information, we are required to report that fact.
In this context, matters that we are specifically required to
report to you as uncorrected material misstatements of the
other information include where we conclude that:
•
Fair, balanced and understandable – the statement
given by the directors that they consider the annual
report and financial statements taken as a whole is
fair, balanced and understandable and provides the
information necessary for shareholders to assess the
group’s position and performance, business model
and strategy, is materially inconsistent with our
knowledge obtained in the audit; or
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Governance
Independent auditor’s report to
the members of R.E.A. Holdings plc continued
•
•
Audit committee reporting – the section describing the
work of the audit committee does not appropriately
address matters communicated by us to the audit
committee; or
Directors’ statement of compliance with the UK
Corporate Governance Code – the parts of the
directors’ statement required under the Listing Rules
relating to the company’s compliance with the UK
Corporate Governance Code containing provisions
specified for review by the auditor in accordance with
Listing Rule 9.8.10R (2) do not properly disclose a
departure from a relevant provision of the UK
Corporate Governance Code.
Responsibilities of directors
As explained more fully in the directors’ responsibilities statement, the directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true and fair view, and for such internal control as the directors
determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due
to fraud or error.
In preparing the financial statements, the directors are responsible for assessing the group’s and the parent company’s ability to
continue as a going concern, disclosing as applicable, matters related to going concern and using the going concern basis of
accounting unless the directors either intend to liquidate the group or the parent company or to cease operations, or have no
realistic alternative but to do so.
Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material
misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is
a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a
material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or
in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these
financial statements.
A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting
Council’s website at: www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.
Use of our report
This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act
2006. Our audit work has been undertaken so that we might state to the company’s members those matters we are required
to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or
assume responsibility to anyone other than the company and the company’s members as a body, for our audit work, for this
report, or for the opinions we have formed.
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Report on other legal and regulatory requirements
Opinion on other matters prescribed by the Companies Act 2006
In our opinion the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the
Companies Act 2006.
In our opinion, based on the work undertaken in the course of the audit:
•
the information given in the strategic report and the directors’ report for the financial year for which the financial
statements are prepared is consistent with the financial statements; and
the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements
•
In the light of the knowledge and understanding of the group and the parent company and their environment obtained in the
course of the audit, we have not identified any material misstatements in the strategic report or the directors’ report.
Matters on which we report by exception
Adequacy of explanations received and accounting
records
Under the Companies Act 2006 we are required to report to
you if, in our opinion:
•
we have not received all the information and
explanations we require for our audit; or
adequate accounting records have not been kept by
the parent company, or returns adequate for our audit
have not been received from branches not visited by us;
or
the parent company financial statements are not in
agreement with the accounting records and returns.
•
•
We have nothing to report in respect of these matters.
Directors’ remuneration
Under the Companies Act 2006 we are also required to
report if in our opinion certain disclosures of directors’
remuneration have not been made or the part of the
directors’ remuneration report to be audited is not in
agreement with the accounting records and returns.
Other matters
We have nothing to report in respect of these matters.
Auditor tenure
Following the recommendation of the audit committee, we were appointed by the board of directors in 2002 to audit the financial
statements for the year ending 31 December 2002 and subsequent financial periods. The period of total uninterrupted
engagement including previous renewals and reappointments of the firm is 16 years, covering the years ending 31 December
2002 to 31 December 2017.
Consistency of the audit report with the additional report to the audit committee
Our audit opinion is consistent with the additional report to the audit committee we are required to provide in accordance with
ISAs (UK).
Colin Rawlings, FCA (Senior statutory auditor)
for and on behalf of Deloitte LLP
Statutory Auditor
London
26 April 2018
R.E.A. Holdings plc Annual Report and Accounts 2017
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Group financial statements
Consolidated income statement
for the year ended 31 December 2017
2017 2016
Note $’000 $’000
Revenue 2 100,241 79,265
Net (loss) / gain arising from changes in fair value of agricultural produce inventory 4 (1,069) 632
Cost of sales:
Depreciation and amortisation (22,215) (20,959)
Other costs (64,062) (50,868)
Gross profit 12,895 8,070
Other operating income 2 – 1
Distribution costs (1,378) (1,110)
Administrative expenses 5 (13,681) (11,987)
Operating loss (2,164) (5,026)
Investment revenues 2, 7 1,072 1,742
Finance costs 8 (20,770) (6,005)
Loss before tax 5 (21,862) (9,289)
Tax 9 (3,039) (2,019)
Loss for the year (24,901) (11,308)
Attributable to:
Ordinary shareholders (27,408) (17,800)
Preference shareholders 10 7,777 7,402
Non-controlling interests 34 (5,270) (910)
(24,901) (11,308)
Basic and diluted loss per 25p ordinary share (US cents) 11 (67.0) (48.2)
The company is exempt from preparing and disclosing its profit and loss account
All operations for both years are continuing
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Group financial statements
Consolidated balance sheet
as at 31 December 2017
2017 2016
Note $’000 $’000
Non-current assets
Goodwill 12 12,578 12,578
Intangible assets 13 3,477 4,176
Property, plant and equipment 14 482,341 471,922
Land titles 15 35,178 34,230
Stone and coal interests 16 37,877 37,208
Deferred tax assets 27 9,867 12,781
Non-current receivables 4,996 3,136
Total non-current assets 586,314 576,031
Current assets
Inventories 18 11,497 15,767
Biological assets 19 1,927 2,037
Investments 20 2,730 9,880
Trade and other receivables 21 39,280 42,554
Cash and cash equivalents 22 5,543 24,593
Total current assets 60,977 94,831
Total assets 647,291 670,862
Current liabilities
Trade and other payables 29 (62,212) (43,426)
Current tax liabilities (11) (317)
Bank loans 24 (28,140) (28,628)
Sterling notes 25 – (10,103)
US dollar notes 26 – (20,048)
Other loans and payables 28 (10,469) (519)
Total current liabilities (100,832) (103,041)
Non-current liabilities
Bank loans 24 (96,991) (97,771)
Sterling notes 25 (41,364) (37,037)
US dollar notes 26 (23,649) (23,646)
Deferred tax liabilities 27 (79,600) (80,830)
Other loans and payables 28 (28,120) (18,987)
Total non-current liabilities (269,724) (258,271)
Total liabilities (370,556) (361,312)
Net assets 276,735 309,550
Equity
Share capital 30 132,528 121,426
Share premium account 31 42,401 42,585
Translation reserve 32 (50,897) (39,127)
Retained earnings 33 135,074 161,839
259,106 286,723
Non-controlling interests 34 17,629 22,827
Total equity 276,735 309,550
Approved by the board on 26 April 2018 and signed on behalf of the board.
DAVID J BLACKETT
Chairman
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Group financial statements
Consolidated statement of comprehensive income
for the year ended 31 December 2017
2017 2016
Note $’000 $’000
Loss for the year (24,901) (11,308)
Other comprehensive income
Items that may be reclassified to profit or loss:
Actuarial losses (205) (569)
Deferred tax on actuarial losses 27 41 143
(164) (426)
Items that will not be reclassified to profit and loss:
Exchange differences on translation of foreign operations 32 (11,419) 5,222
Exchange differences on deferred tax 27 (279) 2,617
(11,862) 7,413
Total comprehensive income for the year (36,763) (3,895)
Attributable to:
Ordinary shareholders (39,270) (10,387)
Preference shareholders 7,777 7,402
Non-controlling interests (5,270) (910)
(36,763) (3,895)
Consolidated statement of changes in equity
for the year ended 31 December 2017
Share Share Translation Retained Subtotal Non- Total
capital premium reserve earnings controlling equity
interests
(note 30) (note 31) (note 32) (note 33) (note 34)
$’000 $’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2016 120,288 30,683 (46,282) 187,481 292,170 1,652 293,822
Total comprehensive income – – 7,155 (10,824) (3,669) (226) (3,895)
Sale of shareholding in sub-group – – – (7,416) (7,416) 21,401 13,985
Issue of new ordinary shares (cash) 1,138 11,902 – – 13,040 – 13,040
Dividends to preference shareholders – – – (7,402) (7,402) – (7,402)
At 31 December 2016 121,426 42,585 (39,127) 161,839 286,723 22,827 309,550
Total comprehensive income – – (11,770) (19,795) (31,565) (5,198) (36,763)
Sale of shareholding in sub-group – – – 807 807 – 807
Issue of new preference shares (cash) 11,102 (184) – – 10,918 – 10,918
Dividends to preference shareholders – – – (7,777) (7,777) – (7,777)
At 31 December 2017 132,528 42,401 (50,897) 135,074 259,106 17,629 276,735
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Group financial statements
Consolidated cash flow statement
for the year ended 31 December 2017
2017 2016
Note $’000 $’000
Net cash from operating activities 35 19,670 2,598
Investing activities
Interest received 29 1,742
Proceeds from disposal of property, plant and equipment – 61
Purchases of property, plant and equipment (31,960) (31,137)
Purchases of intangible assets (112) –
Expenditure on land titles (949) (367)
Investment in stone and coal interests (669) (1,860)
Net cash used in investing activities (33,661) (31,561)
Financing activities
Preference dividends paid (7,777) (7,402)
Repayment of borrowings (6,754) (11,004)
Repayment of borrowings from related party (7,400) –
Proceeds of issue of ordinary shares, less costs of issue – 13,040
Proceeds of issue of preference shares, less costs of issue 10,918 –
Proceeds of issue of 2022 dollar notes, less costs of issue – (44)
Redemption of 2017 dollar notes (20,156) (45)
Redemption of 2017 sterling notes (11,154) –
Proceeds of issue / sale of sterling notes, less costs of issue – 1,922
Proceeds of sale of investments 7,078 –
Proceeds of sale of shareholding in subsidiary – 13,985
New borrowings from non-controlling shareholder and related party 23,986 12,446
New bank borrowings drawn 6,356 14,939
Net cash from financing activities (4,903) 37,837
Cash and cash equivalents
Net (decrease)/increase in cash and cash equivalents 36 (18,894) 8,874
Cash and cash equivalents at beginning of year 24,593 15,758
Effect of exchange rate changes (156) (39)
Cash and cash equivalents at end of year 22 5,543 24,593
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Group financial statements
Accounting policies (group)
General information
R.E.A. Holdings plc is a company incorporated and domiciled
in the United Kingdom under the Companies Act 2006 with
registration number 00671099. The company’s registered
office is at First Floor, 32-36 Great Portland Street, London
W1X 8QX. Details of the group’s principal activities are
provided in the Strategic report.
Basis of accounting
The consolidated financial statements set out on pages 76
to 109 are prepared in accordance with International
Financial Reporting Standards (“IFRS”) as adopted by the
EU as at the date of approval of the financial statements
and therefore comply with Article 4 of the EU IAS
Regulation. The statements are prepared under the
historical cost convention except where otherwise stated in
the accounting policies.
The directors have conducted a review of the projected cash
flows from operations, investing and financing and have set
out their assessment of liquidity and financing adequacy on
pages 32 and 33 of the strategic report, including the
actions either in progress or contemplated in order to
ensure adequate liquidity for the next twelve months.
Accordingly, having made due enquiries, the directors
reasonably expect that the company and the group have
adequate resources to continue in operational existence for
at least twelve months from the date of approval of the
financial statements and, therefore, they continue to adopt
the going concern basis of accounting in preparing the
financial statements.
Presentational currency
The consolidated financial statements of the group are
presented in US dollars, which is also considered to be the
currency of the primary economic environment in which the
group operates. References to “$” or “dollar” in these
financial statements are to the lawful currency of the United
States of America.
Adoption of new and revised standards
In the current year the group has applied a number of
amendments to IFRSs issued by the International
Accounting Standards Board (“IASB”) that are mandatorily
effective for an accounting period beginning on 1 January
2017. There have been no changes to the group’s
accounting policies resulting from the adoption of these
amendments to IFRSs, although certain disclosures have
been amended to reflect the new requirements. In particular
the Amendments to IAS 7 – Disclosure Initiative – require
an entity to provide disclosures that enable users of
financial statements to evaluate changes in liabilities from
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R.E.A. Holdings plc Annual Report and Accounts 2017
financing activities, including both cash and non-cash
changes. The group’s liabilities arising from financing
activities consist of bank loans (note 24), sterling notes
(note 25), dollar notes (note 26) and loans from non-
controlling shareholders (note 28). A reconciliation between
the opening and closing balances of these items is provided
(note 23). Consistent with the transition provisions of the
amendments, the group has not disclosed comparative
information for the prior year.
At the date of authorisation of these financial statements,
the standards and interpretations which were in issue but
not yet effective (and in certain cases had not yet been
adopted by the EU) have not been applied in these financial
statements) are set out below together with their effective
dates of implementation:
IFRS 9: Financial instruments 1 January 2018
IFRS 15: Revenue from contracts with
customers 1 January 2018
IFRS 16: Leases 1 January 2019
IFRS 2: Classification and measurement
of share-based payment
transactions (amendments) 1 January 2018
IFRS 4: Applying IFRS 9 Financial
instruments with IFRS 4 Insurance
contracts (amendments) 1 January 2018
IFRIC interpretation 22: Foreign
currency transactions and advance
consideration 1 January 2018
IAS 40: Transfers of investment
property (amendments) 1 January 2018
IFRS 9 implements the IASB’s project to replace IAS 39:
Financial instruments: recognition and measurement. It sets
out the classification and measurement criteria for financial
assets and financial liabilities and the requirements relating
to hedge accounting. It is not considered that the effect of
applying the standard will have a material impact on the
group’s reported profit or equity.
The directors have also considered the impact of IFRS 15:
Revenue from contracts with customers. The new standard
requires entities to recognise revenue on the transfer of
goods or services to customers in amounts that reflect the
consideration to which the company expects to be entitled
in exchange for those goods or services. The new standard
will also result in enhanced disclosures about revenue,
provide guidance for transactions that were not previously
addressed comprehensively (for example, service revenue
and contract modifications) and improve guidance for
multiple-element arrangements. The directors do not
consider that the adoption of IFRS 15 will result in any
change to the amount and timing of the group’s revenue but
will require some additional disclosures.
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The directors do not expect that the adoption of the other
standards, amendments and interpretations listed above will
have a material impact on the financial statements of the
group in future periods.
Basis of consolidation
The consolidated financial statements consolidate the
financial statements of the company and its subsidiary
companies (as listed in note (iv) to the company’s individual
financial statements) made up to 31 December of each year.
The acquisition method of accounting is adopted with assets
and liabilities valued at fair values at the date of acquisition.
The interest of non-controlling shareholders is stated at the
non-controlling shareholders’ proportion of the fair values of
the assets and liabilities recognised. The share of total
comprehensive income is attributed to the owners of the
parent and to non-controlling interests even if this results in
the non-controlling interests having a deficit balance. Results
of subsidiaries acquired or disposed of are included in the
consolidated income statement from the effective date of
acquisition or to the effective date of disposal. Where
necessary, adjustments are made to the financial statements
of subsidiaries to bring the accounting policies into line with
those used by the group.
On acquisition, any excess of the fair value of the
consideration given over the fair value of identifiable net
assets acquired is recognised as goodwill. Any deficiency in
consideration given against the fair value of the identifiable net
assets acquired is credited to profit or loss in the consolidated
income statement in the period of acquisition.
transition to IFRS is retained at the previous UK Generally
Accepted Accounting Practice amount subject to testing for
impairment at that date. Goodwill written off to reserves
prior to 1 January 1998, in accordance with the accounting
standards then in force, has not been reinstated and is not
included in determining any subsequent profit or loss on
disposal.
Other intangible assets
Other intangible assets are stated at cost less accumulated
amortisation and any recognised impairment losses.
Intangible assets acquired separately are measured at cost on
initial recognition. An intangible asset with a finite life is
amortised on a straight-line basis so as to charge its cost to
the income statement over its expected useful life. An
intangible asset with an indefinite life is not amortised but is
tested at least annually for impairment and carried at cost less
any recognised impairment losses.
Computer software that is not integral to an item of property,
plant and equipment is recognised separately as an intangible
asset. Amortisation is provided on a straight-line basis so as
to charge the cost of the software to the income statement
over its expected useful life, not exceeding eight years.
The expected useful lives of acquired intangible assets are as
follows:
Purchased software
Licences (other than land titles)
Other
4-8 years
duration of the licence
up to 6 years
All intra-group transactions, balances, income and expenses
are eliminated on consolidation.
Revenue recognition
Goodwill
Goodwill is recognised as an asset on the basis described
under “Basis of consolidation” above and once recognised is
not depreciated although it is tested for impairment at least
annually. Any impairment is debited immediately as a loss in
the consolidated income statement and is not subsequently
reversed. On disposal of a subsidiary, the attributable
amount of any goodwill is included in the determination of
the profit or loss on disposal.
For the purpose of impairment testing, goodwill is allocated
to each of the group's cash generating units expected to
benefit from the synergies of the combination. Cash
generating units to which goodwill has been allocated are
tested for impairment annually, or more frequently when
there is an indication that the unit may be impaired.
Goodwill arising between 1 January 1998 and the date of
Revenue is measured at the fair value of the consideration
received or receivable in respect of goods and services
provided in the normal course of business, net of VAT and
other sales related taxes. Sales of goods are recognised
when the significant risks and rewards of ownership of the
goods are transferred to the buyer and include contracted
sales in respect of which the contracted goods are available
for collection by the buyer in the accounting period. Income
from services is accrued on a time basis by reference to the
rate of fee agreed for the provision of services.
Interest income is accrued on a time basis by reference to
the principal outstanding and at the effective interest rate
applicable (which is the rate that exactly discounts
estimated future cash receipts, through the expected life of
the financial asset, to that asset’s net carrying amount).
Dividend income is recognised when the shareholders’
rights to receive payment have been established.
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Group financial statements
Accounting policies (group)
continued
Leasing
Borrowing costs
Assets held under finance leases and other similar contracts
are recognised as assets of the group at their fair values or,
if lower, at the present values of minimum lease payments
(for each asset, determined at the inception of the lease)
and are depreciated over the shorter of the lease terms and
their useful lives. The corresponding liabilities are included
in the balance sheet as finance lease obligations. Lease
payments are apportioned between finance charges and a
reduction in the lease obligation to produce a constant rate
of interest on the balance of the capital repayments
outstanding. Hire purchase transactions are dealt with
similarly, except that assets are depreciated over their useful
lives. Finance and hire purchase charges are charged
directly against income.
Rental payments under operating leases are charged to
income on a straight-line basis over the term of the relevant
lease.
Borrowing costs incurred in financing construction or
installation of qualifying property, plant or equipment are
added to the cost of the qualifying asset, until such time as
the construction or installation is substantially complete and
the asset is ready for its intended use. Borrowing costs
incurred in financing the planting of extensions to the
developed agricultural area are treated as expenditure
relating to plantings until such extensions reach maturity. All
other borrowing costs are recognised in the consolidated
income statement of the period in which they are incurred.
Operating profit
Operating profit is stated after any gain or loss arising from
changes in the fair value of agricultural produce inventory
but before investment income and finance costs.
Pensions and other post-employment benefits
Foreign currencies
United Kingdom
Transactions in foreign currencies are recorded at the rates
of exchange ruling at the dates of the transactions. At each
balance sheet date, assets and liabilities denominated in
foreign currencies are retranslated at the rates of exchange
prevailing at that date except that non-monetary items that
are measured in terms of historical cost in a foreign
currency are not retranslated. Exchange differences arising
on the settlement of monetary items, and on the
retranslation of other items that are subject to retranslation,
are included in the net profit or loss for the period, except
for exchange differences arising on non-monetary assets
and liabilities, including foreign currency loans, which, to the
extent that such loans relate to investment in overseas
operations or hedge the group’s investment in such
operations, are recognised directly in equity.
For consolidation purposes, the assets and liabilities of any
group entity with a functional currency other than the US
dollar are translated at the exchange rate at the balance
sheet date. Income and expenses are translated at the
average rate for the period unless exchange rates fluctuate
significantly. Exchange differences arising are classified as
equity and transferred to the group’s translation reserve.
Such exchange differences are recognised as income or
expenses in the period in which the entity is sold.
Goodwill and fair value adjustments arising on the
acquisition of an entity with a functional currency other than
the US dollar are treated as assets and liabilities of that
entity and are translated at the closing rate of exchange.
Certain existing and former UK employees of the group are
members of a multi-employer contributory defined benefit
scheme. The estimated regular cost of providing for
benefits under this scheme is calculated so that it
represents a substantially level percentage of current and
future pensionable payroll and is charged as an expense as
it is incurred.
Amounts payable to recover actuarial losses, which are
assessed at each actuarial valuation, are payable over a
recovery period agreed with the scheme trustees. Provision
is made for the present value of future amounts payable by
the group to cover its share of such losses. The provision is
reassessed at each accounting date, with the difference on
reassessment being charged or credited to the consolidated
income statement in addition to the adjusted regular cost for
the period.
Indonesia
In accordance with local labour law, the group’s employees
in Indonesia are entitled to lump sum payments on
retirement. These obligations are unfunded and provision is
made annually on the basis of a periodic assessment by
independent actuaries. Actuarial gains and losses are
recognised in the statement of comprehensive income; any
other increase or decrease in the provision is recognised in
the consolidated statement of income, net of amounts
added to plantings within property, plant and equipment.
Taxation
The tax expense represents the sum of tax currently payable
and deferred tax. Tax currently payable represents amounts
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expected to be paid (or recovered) based on the taxable
profit for the period using the tax rates and laws that have
been enacted or substantively enacted at the balance sheet
date. Deferred tax is calculated on the balance sheet
liability method on a non-discounted basis on differences
between the carrying amounts of assets and liabilities in the
financial statements and the corresponding fiscal balances
used in the computation of taxable profits (temporary
differences). Deferred tax liabilities are generally
recognised for all taxable temporary differences and
deferred tax assets are recognised to the extent that it is
probable that taxable profits will be available against which
deductible temporary differences can be utilised. A deferred
tax asset or liability is not recognised in respect of a
temporary difference that arises from goodwill or from the
initial recognition of other assets or liabilities in a transaction
which affects neither the profit for tax purposes nor the
accounting profit.
Deferred tax is calculated at the tax rates that are expected
to apply in the periods when deferred tax liabilities are
settled or deferred tax assets are realised. Deferred tax is
charged or credited in the consolidated income statement,
except when it relates to items charged or credited directly
to equity, in which case the deferred tax is also dealt with in
equity.
Property, plant and equipment - plantings
On application of the amendments to IAS41: Agriculture
and IAS 19: Property, plant and equipment, the directors
elected to state the group’s plantings at deemed cost being
the fair value recognised as at 1 January 2015 less the fair
value at that date of the growing produce which is disclosed
in current assets under “Biological assets”. Additions after
that date (which include interest incurred during the period
of immaturity) are recognised at historical cost.
Depreciation is not provided on immature plants. Once
plants reach maturity, depreciation is provided on a straight
line basis at a rate that will write off the costs of the plants
by the date on which they are scheduled to be replanted,
with a maximum of 24 years.
Property, plant and equipment - other
All property, plant and equipment other than plantings is
carried at original cost less any accumulated depreciation
and any accumulated impairment losses. Depreciation is
computed using the straight line method so as to write off
the cost of assets, other than property and plant under
construction, over the estimated useful lives of the assets as
follows: buildings and structures – 20 to 67 years; plant,
equipment and vehicles - 5 to 16 years. Construction in
progress is not depreciated. Where the directors consider
that the residual value of an asset exceeds its carrying
value, no depreciation will be provided.
Assets held under finance leases are depreciated over their
expected useful lives on the same basis as owned assets or,
where shorter, over the terms of the relevant leases.
The gain or loss on the disposal or retirement of an asset is
determined as the difference between the sales proceeds,
less costs of disposal, and the carrying amount of the asset
and is recognised in the consolidated income statement.
Land
Land comprises payments to acquire Indonesian licences
over land for plantation purposes, together with related
costs including surveys and villager compensation. In view
of the indefinite economic life associated with such licences,
they are not depreciated.
Impairment of tangible and intangible assets excluding
goodwill
At each balance sheet date, the group reviews the carrying
amounts of its tangible and intangible assets to determine
whether there is any indication that any asset has suffered
an impairment loss. If any such indication exists, the
recoverable amount of the asset is estimated in order to
determine the extent of the impairment loss (if any). Where
the asset does not generate cash flows that are
independent from other assets, the group estimates the
recoverable amount of the cash-generating unit to which the
asset belongs. An intangible asset with an indefinite useful
life is tested for impairment annually and whenever there is
an indication that the asset may be impaired.
The recoverable amount of an asset (or cash-generating
unit) is the higher of fair value less costs to sell and value in
use. In assessing value in use, estimated future cash flows
are discounted to their present value using a pre-tax
discount rate that reflects current market assessments of
the time value of money and those risks specific to the
asset (or cash-generating unit) for which the estimates of
future cash flows have not been adjusted. If the recoverable
amount of an asset (or cash-generating unit) is estimated to
be less than its carrying amount, the carrying amount of the
asset (or cash-generating unit) is reduced to its recoverable
amount. An impairment loss is recognised as an expense
immediately, unless the relevant asset is carried at a
revalued amount, in which case the impairment loss is
treated as a revaluation decrease.
Where, with respect to assets other than goodwill, an
impairment loss subsequently reverses, the carrying amount
of the asset (or cash-generating unit) is increased to the
revised estimate of its recoverable amount, but so that the
increased carrying amount does not exceed the carrying
amount that would have been determined had no
impairment loss been recognised for the asset (or cash-
generating unit) in prior years. A reversal of an impairment
loss is recognised as income immediately, unless the
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Group financial statements
Accounting policies (group)
continued
relevant asset is carried at a revalued amount, in which case
the reversal of the impairment loss is treated as a
revaluation increase.
Inventories
Inventories of agricultural produce harvested from the
group’s oil palms are stated at fair value at the point of
harvest of the fresh fruit bunches (“FFB”) from which the
produce derives plus costs incurred in the processing of
such FFB (including direct labour costs and overheads that
have been incurred in bringing such inventories to their
present location and condition) or at net realisable value if
lower. Inventories of engineering and other items are valued
at the lower of cost, on the weighted average method, or net
realisable value.
For these purposes, net realisable value represents the
estimated selling price (having regard to any outstanding
contracts for forward sales of produce) less all estimated
costs of processing and costs incurred in marketing, selling
and distribution.
Biological assets
Biological assets comprise the growing produce (fresh fruit
bunches – “FFB”) on oil palm trees and are carried at fair
value using a formulaic methodology to determine the
estimated value of the oil content of FFB which develops in
the fruitlets in the five to six weeks immediately prior to
harvest. The oil content so derived, both CPO and CPKO, is
valued at market value, after deducting harvesting,
processing and transport costs.
Periodic movements in the fair value of growing produce are
reflected in the consolidated income statement
Recognition and de-recognition of financial instruments
Financial assets and liabilities are recognised in the group’s
financial statements when the group becomes a party to the
contractual provisions of the relative constituent
instruments. Financial assets are derecognised only when
the contractual rights to the cash flows from the assets
expire or if the group transfers substantially all the risks and
rewards of ownership to another party. Financial liabilities
are derecognised when the group’s obligations are
discharged, cancelled or have expired.
Non-derivative financial assets
The group’s non-derivative financial assets comprise loans
and receivables (including stone and coal interests), and
cash and cash equivalents. The group does not hold any
financial assets designated as held at “fair value through
profit and loss” or “available-for-sale” financial assets.
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Loans and receivables
Trade receivables, loans and other receivables in respect of
which payments are fixed or determinable and which are not
quoted in an active market are classified as loans and
receivables. Stone and coal interests are also classified as
loans and receivables. Stone and coal interests are
measured at amortised cost using the effective interest rate
method. All other loans and receivables held by the group
are non-interest bearing and are stated at their nominal
amount.
All loans and receivables are reduced by appropriate
allowances for potentially irrecoverable amounts.
Cash and cash equivalents
Cash and cash equivalents comprise cash in hand, demand
deposits and other short-term highly liquid investments that
have a maturity of not more than three months from the
date of acquisition and are readily convertible to a known
amount of cash and, being subject to an insignificant risk of
changes in value, are stated at their nominal amounts.
Held-to-maturity investments
Debentures and shares with fixed and determinable
payments and fixed maturity dates that are intended to be
held to maturity are classified as held-to-maturity
investments, and are measured at amortised cost using the
effective interest method, less any impairment, with revenue
recognised on an effective yield basis.
Non-derivative financial liabilities
The group’s non-derivative financial liabilities comprise
redeemable instruments, bank borrowings, loans from non-
controlling shareholders, finance leases and trade payables,
which are held at amortised cost.
Note issues, bank borrowings and finance leases
Redeemable instruments being US dollar and sterling note
issues, bank borrowings and finance leases are classified in
accordance with the substance of the relative contractual
arrangements. Finance costs are charged to income on an
accruals basis, using the effective interest method, and
comprise, with respect to redeemable instruments, the
coupon payable together with the amortisation of issuance
costs (which include any premiums payable or expected by
the directors to be payable on settlement or redemption)
and, with respect to bank borrowings and finance leases,
the contractual rate of interest together with the
amortisation of costs associated with the negotiation of, and
compliance with, the contractual terms and conditions.
Redeemable instruments are recorded in the accounts at
their expected redemption value net of the relative
249315 REA Holdings p68-end.qxp 27/04/2018 13:03 Page 85
unamortised balances of issuance costs. Bank borrowings
and finance leases are recorded at the amounts of the
proceeds received less subsequent repayments with the
relative unamortised balance of costs treated as non-current
receivables.
Trade payables
All trade payables owed by the group are non-interest
bearing and are stated at their nominal value.
Equity instruments
Instruments are classified as equity instruments if the
substance of the relative contractual arrangements
evidences a residual interest in the assets of the group after
deducting all of its liabilities. Equity instruments issued by
the company are recorded at the proceeds received, net of
direct issue costs not charged to income. The preference
shares of the company are regarded as equity instruments.
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Group financial statements
Notes to the consolidated financial statements
1. Critical accounting judgements and key sources of
estimation uncertainty
In the application of the group’s accounting policies, which
are set out in “Accounting policies (group)” above, the
directors are required to make judgements, estimates and
assumptions. Such judgements, estimates and assumptions
are based on historical experience and other factors that
are considered to be relevant. Actual values of assets and
amounts of liabilities may differ from estimates. The
judgements, estimates and assumptions are reviewed on a
regular basis. Revisions to estimates are recognised in the
period in which the estimates are revised.
Critical judgements in applying the group’s accounting
policies
The following are critical judgements not being judgements
involving estimations (which are dealt with below) that the
directors have made in the process of applying the group’s
accounting policies.
Assets held for sale
When directors have decided to seek purchasers for any
non-current asset or disposal group, they are required by
IFRS 5 Non-current assets held for sale and discontinued
operations to determine whether such asset or disposal
group should be classified as held for sale and disclosed as
a current asset at the lower of its carrying value or fair value
less costs to sell. For such asset to be so classified, it must
be available for immediate sale and its sale must, in the
opinion of the directors, be highly probable. The directors
have reviewed the chronology of the events leading to the
execution of the conditional sale contract for the group’s
investment in PT Putra Bongan Jaya (“PBJ”), as disclosed
in note 40, and have concluded that as at 31 December
2017, the sale of PBJ was not highly probable.
Biological assets
IAS 41 “Agriculture” requires the determination of the fair
value of biological assets (the growing crop of FFB). No
market exists for unripe FFB, so management must select
an appropriate methodology to be used, together with
suitable metrics, for determining fair value. The quantity of
trees and the absence of accepted valuation bases for
measuring the value of the ripening FFB between flowering
and harvest have led management to value the growing crop
of FFB by reference to the formation of the oil content in the
fruitlets on the FFB in the period immediately before harvest.
Capitalisation of interest and other costs
As described under “Property plant and equipment -
plantings” in “Accounting policies (group)”, all expenditure on
plantings up to maturity, including interest, is treated as an
addition to such assets. The directors have determined that
normally such capitalisation will cease at the end of the third
financial year following the year in which land clearing
commenced. At this point, plantings should produce a
commercial harvest and accordingly be treated as having
been brought into use for the purposes of IAS16 “Property
plant and equipment” and of IAS 23 “Borrowing costs”.
However, crop yields at this point may vary depending on the
time of year that land clearing commenced and on climatic
conditions thereafter. In specific cases, the directors may
elect to extend the period of capitalisation by a further year.
Land
The Indonesian system of land tenure for agricultural
purposes (“hak guna usaha” or “HGU”) gives the licensee
rights to occupy for periods of up to 35 years, followed by an
extension and then further renewals of between 25 and 35
years. Local law and regulation is silent on the extent of
renewals after the first extension. However, it has always
been the working assumption of those in the industry in
Indonesia that such renewals will be permitted, at negligible
cost as is currently the case, and accordingly replanting
programmes are reliant on such judgement. Based on these
and other considerations, no depreciation is applied to the
costs associated with the obtaining of the initial HGUs.
Taxation of retained earnings of overseas subsidiaries
No liability is recognised for the taxation that would arise on the
distributions to the UK in the future of the retained earnings of
oversea subsidiaries on the grounds that the directors are in a
position to control the timing of such distribution.
Key sources of estimation uncertainty
The key sources of estimation uncertainty at the balance
sheet date, which have a significant risk of causing a
material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are described below.
Biological assets
Because of the inherent uncertainty associated with the
valuation methodology used in determination of the fair
value of the group’s biological assets, and the fact that
choice of a different methodology could give a different
result, the actual value of ripening FFB may differ from that
estimated (see note 19).
Taxes
The group is subject to taxes in various jurisdictions.
Uncertainties relating to certain Indonesian legislative
provisions, the availability of tax losses, the future periods in
which timing differences are likely to reverse and the final
determination of liabilities in respect of disputed tax items in
Indonesia (see note 9) mean that tax outcomes may differ
from estimates.
Stone and coal interests
In view of the fluctuations in the market prices for stone and
coal to be extracted from the group’s concessions, the
carrying value of the stone and coal interests may differ
from their realisable value (see note 16).
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2. Revenue
2017 2016
$’000 $’000
Sales of goods 99,956 77,642
Revenue from services 285 1,623
100,241 79,265
Other operating income – 1
Investment revenue 1,072 1,742
Total revenue 101,313 81,008
In 2017, two customers accounted for respectively 60 per cent and 24 per cent of the group’s sales of agricultural goods
(2016: two customers, 72 per cent and 16 per cent). As stated in note 23 “Credit risk”, substantially all sales of goods are
made on the basis of cash against documents or letters of credit and accordingly the directors do not consider that these sales
result in a concentration of credit risk to the group.
The crop of oil palm fresh fruit bunches for 2017 amounted to 530,565 tonnes (2016: 468,371 tonnes). The fair value of the
crop of fresh fruit bunches was $61.6 million (2016: $49.7 million), based on the price formulae determined by the Indonesian
government for purchases of fresh fruit bunches from smallholders.
3. Segment information
In the table below, the group’s sales of goods are analysed by geographical destination and the carrying amount of net assets is
analysed by geographical area of asset location. The group operates in two segments: the cultivation of oil palms and stone
and coal operations. In 2017 and 2016, the latter did not meet the quantitative thresholds set out in IFRS 8 “Operating
segments” and, accordingly, no analyses are provided by business segment.
2017 2016
$’m $’m
Sales by geographical destination:
Indonesia 100.2 79.3
Rest of World – –
100.2 79.3
Carrying amount of net assets by geographical area of asset location:
UK, Continental Europe and Singapore 58.0 56.0
Indonesia 218.7 253.6
276.7 309.6
4. Agricultural produce inventory movement
The net (loss) / gain arising from changes in fair value of agricultural produce inventory represents the movement in the fair
value of that inventory less the amount of the movement in such inventory at historic cost (which is included in cost of sales).
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Group financial statements
Notes to the consolidated financial statements
continued
5. Loss before tax
2017 2016
$’000 $’000
Salient items charged / (credited) in arriving at loss before tax
Administrative expenses (see below) 13,681 11,987
Movement in inventories (at historic cost) (883) (313)
Amounts provided against inventories – 73
Movement in fair value of growing produce (110) 68
Operating lease rentals 284 373
Amortisation of intangible assets 812 74
Depreciation of property, plant and equipment 21,419 20,453
Amortisation of land titles – 432
Administrative expenses
Net foreign exchange losses – 1,290
Loss on disposal of property, plant and equipment – 12
Indonesian operations 14,685 12,756
Head office 5,665 5,377
20,350 19,435
Amount included as additions to property, plant and equipment (6,669) (7,448)
13,681 11,987
Amounts payable to the company’s auditor
The amount payable to Deloitte LLP for the audit of the company’s financial statements was $162,000 (2016: $149,000).
Amounts payable to Deloitte LLP for the audit of accounts of subsidiaries of the company pursuant to legislation were $19,000
(2016: $17,000).
Amounts payable to Deloitte LLP for other services were $9,000 (2016: $8,000) for the provision of certificates of group
compliance with covenants under certain debt instruments (being certificates that those instruments require to be provided by
the company’s auditor) and for tax compliance services.
Amounts payable to affiliates of Deloitte LLP for the audit of subsidiaries’ financial statements were $214,000 (2016:
$174,000) and for other services to subsidiaries were $nil (2016: $nil).
2017 2016
$’000 $’000
Earnings before interest, tax, depreciation and amortisation
Operating loss (2,164) (5,026)
Depreciation and amortisation 22,215 20,959
20,051 15,933
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6. Staff costs, including directors
2017 2016
Number Number
Average number of employees (including executive directors):
Agricultural – permanent 5,928 5,501
Agricultural – temporary 4,086 2,868
Head office 12 11
10,026 8,380
$’000 $’000
Their aggregate remuneration comprised:
Wages and salaries 40,173 31,825
Social security costs 969 700
Pension costs 2,925 1,493
44,067 34,018
Details of the remuneration of directors are shown in the “Directors’ remuneration report”.
7. Investment revenues
2017 2016
$’000 $’000
Interest on bank deposits 32 44
Other interest income 1,040 1,698
1,072 1,742
8. Finance costs
2017 2016
$’000 $’000
Interest on bank loans and overdrafts 15,665 12,617
Interest on dollar notes 2,669 2,899
Interest on sterling notes 5,184 5,184
Interest on other loans 1,896 273
Change in value of sterling notes arising from exchange fluctuations 4,800 (10,470)
Change in value of loans arising from exchange fluctuations (1,190) 1,378
Other finance charges 817 251
29,841 12,132
Amount included as additions to property, plant and equipment (9,071) (6,127)
20,770 6,005
Amounts included as additions to property, plant and equipment and construction in progress arose on borrowings applicable to
the Indonesian operations and reflected a capitalisation rate of 23.5 per cent (2016: 22.0 per cent); there is no directly related
tax relief.
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Group financial statements
Notes to the consolidated financial statements
continued
9. Tax
2017 2016
$’000 $’000
Current tax:
UK corporation tax 28 1
Overseas withholding tax 1,538 1,604
Foreign tax 27 38
Foreign tax - prior year – 3
Total current tax 1,593 1,646
Deferred tax:
Current year (794) 373
Prior year 2,240 –
Total deferred tax 1,446 373
Total tax 3,039 2,019
Taxation is provided at the rates prevailing for the relevant jurisdiction. For Indonesia, the current and deferred taxation
provision is based on a tax rate of 25 per cent (2016: 25 per cent) and for the United Kingdom, the taxation provision reflects a
corporation tax rate of 19.25 per cent (2016: 20 per cent) and a deferred tax rate of 19 per cent (2016: 19 per cent).
The rate of corporation tax reduced from 20 per cent to 19 per cent from 1 April 2017 and will reduce from 19 per cent to
17 per cent from 1 April 2020.
The tax charge for the year can be reconciled to the loss per the consolidated income statement as follows:
2017 2016
$’000 $’000
Loss before tax (21,862) (9,289)
Notional tax at the UK standard rate of 19.25 per cent (2016: 20 per cent) (4,208) (1,858)
Tax effect of the following items:
Interest not deductible 4,724 2,475
Other expenses not deductible 629 702
Non taxable income (49) (29)
Overseas tax rates above UK standard rate 189 (24)
Overseas withholding taxes, net of relief 6 310
Tax credit on loss in overseas subsidiary not recognised (548) 381
Tax losses in overseas subsidiaries time expired 2,240 21
Prior year adjustments – 3
Change in rate of tax applicable to UK tax losses 49 49
Additional tax provisions/(credits) 7 (11)
Tax expense at effective tax rate for the year 3,039 2,019
A regulation issued in 2015 by the Indonesian Ministry of Finance restricts the amount of finance charges that may be
deducted from company profits for taxation purposes by reference to the debt equity ratio of the entity concerned. Where
equity is negative, no deduction of finance charges is permitted.
The prior year deferred tax charge of $2,240,000 relates to a portion of the tax losses of the Indonesian plantation subsidiaries
as at 31 December 2016 which may not be recoverable against future taxable profits within the statutory five year limit.
The company’s principal subsidiary in Indonesia has been involved for several years in two tax disputes with the tax authorities.
The principal case relates to a disputed assessment with respect to mark-to-market losses recorded in 2008 by a subsidiary on
its cross-currency interest rate swaps. In May 2014 the Jakarta Tax Court found in favour of the subsidiary, following which the
disputed tax was refunded in full. The second tax dispute relates to a disputed 2006 assessment and this was decided by the
Jakarta Tax Court in 2012, in part in favour of the subsidiary, following which the related disputed tax was refunded.
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9. Tax - continued
The tax authorities have the right to apply to the Supreme Court of Indonesia for a judicial review of the Tax Court decision.
This comprises an examination of the reasoning of the lower court judges, consideration of the consistency of the judgement
with the evidence presented and with the relevant law, and consideration of any new evidence submitted by either party which
could have a bearing on the matter. It is the normal practice of the tax authorities to file such an appeal in cases which have
been decided by the lower court in favour of the taxpayer. In February 2015, the subsidiary was notified that, in regard to the
first disputed case, the tax authorities filed an appeal for judicial review with the Supreme Court of Indonesia and the subsidiary
filed its counter submission in February 2015 within the prescribed time limit. Those elements of the judgement in favour of the
subsidiary in the second dispute have also been appealed by the tax authorities to the Supreme Court for judicial review. There
is no further progress to report on either appeal cases.
It had been the practice of the tax authorities to withhold interest on refunds of disputed tax until the outcome of judicial review
by the Supreme Court has been handed down. However, a regulation issued in late 2015 now permits tax payers to apply for
such interest following receipt of the disputed tax refunds. Following the Tax Court decisions, the subsidiary applied to the tax
office for the payment to it of interest of up to 48 per cent of the disputed tax that had been refunded. This amounted to some
IDR 52 billion (some $4 million) in aggregate which was received by the subsidiary in 2016. During later discussions with the
local tax office, the tax officials rejected the subsidiary’s claim for interest on that part of the repayment which represented a
refund to the subsidiary of the tax which had been voluntarily paid at the time of the disputed assessment. The subsidiary
disagreed with this interpretation and in 2017 lodged an appeal with the Supreme Court. Meanwhile it is the policy of the
group to recognise in income only the undisputed interest which is received in cash
There are other less significant items of dispute being discussed with the tax authorities.
10. Dividends
2017 2016
$’000 $’000
Amounts recognised as distributions to equity holders:
Preference dividends of 9p per share (2016: 9p per share) 7,777 7,402
7,777 7,402
11. Loss per share
2017 2016
$’000 $’000
Basic and diluted loss for the purpose of calculating loss per share * (27,408) (17,800)
’000 ’000
Weighted average number of ordinary shares for the purpose of basic and diluted loss per share 40,510 36,950
* Being net loss attributable to ordinary shareholders
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Group financial statements
Notes to the consolidated financial statements
continued
12. Goodwill
2017 2016
$’000 $’000
Beginning of year 12,578 12,578
End of year 12,578 12,578
The goodwill of $12.6 million arose from the acquisition by the company in 2006 of a non-controlling interest in the issued
ordinary share capital of Makassar Investments Limited, the parent company of REA Kaltim, for a consideration of $19.0 million
and has an indefinite life. The goodwill is reviewed for impairment as explained under “Goodwill” in “Accounting policies
(group)”.
Accordingly, the oil palm business in Indonesia is regarded as the cash generating unit to which the goodwill relates. The
recoverable amount of the goodwill has been assessed by comparing the carrying value per planted hectare of the group’s oil
palm plantations with publicly disclosed valuations conducted recently of Indonesian plantations held by other groups.
Based upon their review, the directors have concluded that no impairment of goodwill is required.
13. Intangible assets
2017 2016
$’000 $’000
Beginning of year 5,265 –
Additions 112 –
Transfers from property, plant and equipment – 4,123
Transfers from deferred charges – 1,142
End of year 5,377 5,265
Amortisation:
Beginning of year 1,089 –
Additions 811 74
Transfers from property, plant and equipment – 124
Transfers from deferred charges – 891
End of year 1,900 1,089
Carrying amount:
Beginning of year 4,176 –
End of year 3,477 4,176
Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible
asset.
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14. Property, plant and equipment
Plantings Buildings Plant, Construction Total
and structures equipment in progress
and vehicles
$’000 $’000 $’000 $’000 $’000
Cost:
At 1 January 2016 178,921 239,799 110,043 9,931 538,694
Additions 7,104 18,082 2,173 3,778 31,137
Exchange differences – – (63) – (63)
Disposals (24) (16) (439) – (479)
Transfers to / (from) construction in progress – 1,008 82 (1,090) –
Transfers to intangible assets – – (124) (3,999) (4,123)
Transfers to deferred charges – – – (3,025) (3,025)
Transfers to current receivables (4) – – – (4)
Transfers to income statement (141) – – – (141)
At 31 December 2016 185,856 258,873 111,672 5,595 561,996
Opening balance reclassification 3,966 (3,966) – – –
Additions 11,547 17,605 1,008 1,678 31,838
Transfers to / (from) construction in progress – 2,128 69 (2,197) –
At 31 December 2017 201,369 274,640 112,749 5,076 593,834
Accumulated depreciation:
At 1 January 2016 8,689 22,033 39,122 – 69,844
Charge for year 9,082 5,076 6,608 – 20,766
Transfers to intangible assets – – (124) – (124)
Disposals – (11) (401) – (412)
At 31 December 2016 17,771 27,098 45,205 – 90,074
Charge for year 9,190 5,281 6,948 – 21,419
At 31 December 2017 26,961 32,379 52,153 – 111,493
Carrying amount:
At 31 December 2017 174,408 242,261 60,596 5,076 482,341
At 31 December 2016 168,085 231,775 66,467 5,595 471,922
The depreciation charge for the year includes $15,000 (2016: $313,000) which has been capitalised as part of additions to
plantings and buildings and structures.
At the balance sheet date, the book value of finance leases included in property, plant and equipment was $nil (2016: $nil).
At the balance sheet date, the group had entered into contractual commitments for the acquisition of property, plant and
equipment amounting to $8.2 million (2016: $1.4 million).
At the balance sheet date, property, plant and equipment of $328.5 million (2016: $298.6 million) had been charged as
security for bank loans.
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Group financial statements
Notes to the consolidated financial statements
continued
15. Land titles
2017 2016
$’000 $’000
Cost:
Beginning of year 38,903 38,536
Additions 948 367
End of year 39,851 38,903
Accumulated amortisation:
Beginning of year 4,673 4,241
Charge for year – 432
End of year 4,673 4,673
Carrying amount:
End of year 35,178 34,230
Beginning of year 34,230 34,295
Balances classified as land titles represent amounts invested in land utilised for the purpose of the plantation operations in
Indonesia. At 31 December 2017, certificates of HGU had been obtained in respect of areas covering 76,127 hectares
(2016: 70,584 hectares). An HGU is effectively a government lease entitling the lessee to utilise the land leased for
agricultural and related purposes. Retention of an HGU is subject to payment of annual land taxes in accordance with
prevailing tax regulations. HGUs are normally granted for an initial term of 30 years and are renewable on expiry of such term.
At the balance sheet date, land titles of $13.2 million (2016: $15.2 million) had been charged as security for bank loans (see
note 24).
16. Stone and coal interests
2017 2016
$’000 $’000
Stone company 19,172 17,435
Coal companies 21,705 22,773
Provision against loan to coal companies (3,000) (3,000)
37,877 37,208
Interest bearing loans have been made to two Indonesian companies that, directly and through a further Indonesian company,
own rights in respect of certain stone and coal concessions in East Kalimantan Indonesia together, with related balances; such
loans are repayable not later than 2020. Pursuant to the arrangements between the group and its local partners, the
company’s subsidiary, KCC Resources Limited (“KCC”), has the right, subject to satisfaction of local regulatory requirements, to
acquire the three concession holding companies at original cost on a basis that will give the group (through KCC) 95 per cent
ownership with the balance of 5 per cent remaining owned by the local partners. Under current regulations such rights cannot
be exercised. In the meantime, the concession holding companies are being financed by loan funding from the group and no
dividends or other distributions or payments may be paid or made by the concession holding companies to the local partners
without the prior agreement of KCC. A guarantee has been executed by the stone concession company in respect of the
amounts owed to the group by the two coal concession companies.
The directors have carried out a recoverability assessment of the loans by which the group is funding the concession holding
companies. Each concession holding company has been treated as a cash-generating unit and its recoverable amount has
been estimated on the basis of value in use, applying an appropriate discount rate and, where applicable, taking into account
cross guarantees.
No impairment charge has been considered necessary in the 2017 consolidated income statement (2016: $nil).
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17. Subsidiaries
A list of the subsidiaries, including the name, country of incorporation, activity, registered office address and proportion of
ownership is given in note (iv) to the company’s individual financial statements.
18. Inventories
2017 2016
$’000 $’000
Agricultural produce 4,417 6,921
Engineering and other operating inventory 7,080 8,846
11,497 15,767
Agricultural produce inventory is carried at fair value less selling costs. Engineering and other operating inventory is carried at
cost less any amounts provided against which approximates its fair value. Inventory with a carrying value of $1.2 million is subject
to a floating charge as security for a bank loan.
At the balance sheet date, inventories of $11.1 million (2016: $13.5 million) had been charged as security for bank loans (see
note 24).
19. Biological assets
Biological assets comprise the growing produce on the group's oil palms and are carried at fair value. The basis of valuation is
set out under “Biological assets” in Accounting policies (group). Biological assets are classified as level 3 in the fair value
hierarchy prescribed by IFRS 7 “Financial instruments: Disclosures” as no transactions occur in growing produce prior to
harvest.
2017 2016
$’000 $’000
Beginning of year 2,037 2,105
Fair value loss taken to income (110) (68)
End of year 1,927 2,037
At the balance sheet date, biological assets of $1.9 million (2016: $2.0 million) had been charged as security for bank loans
(see note 24).
20. Investments
2017 2016
$’000 $’000
R.E.A. Holdings plc 7.5 per cent US dollar notes 2022 2,730 9,880
2,730 9,880
$7,150,000 nominal of the 7.5 per cent US dollar notes 2022 (“2022 dollar notes”) acquired in 2016 at 100% of their principal
amount by R.E.A. Services Limited (a wholly owned subsidiary of the company) were sold during 2017. The 2022 notes were
sold in tranches over the course of the year at prices of minimum 96.5 per cent to maximum 99.5 per cent of the nominal value of
the notes.
All of the $2,730,000 2022 dollar notes held at 31 December have now been sold at 96.75 per cent. of the nominal value of the
notes.
The company has designated the above holdings as available-for-sale investments carried at cost. The directors consider that the
fair value of the investments approximates cost. The investments are quoted on the London Stock Exchange.
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Group financial statements
Notes to the consolidated financial statements
continued
21. Trade and other receivables
2017 2016
$’000 $’000
Due from sale of goods 1,940 10,269
Prepayments and advance payments 6,975 8,703
Advance payment of taxation 11,321 15,236
Deposits and other receivables 19,044 8,346
39,280 42,554
Sales of goods are normally made on a cash against documents basis with an average credit period (which takes account of
customer deposits as disclosed in note 29) of 19 days (2016: 11 days). The directors consider that the carrying amount of
trade and other receivables approximates their fair value.
At the balance sheet date, trade and other receivables of $11.0 million had been charged as security for bank loans (see note 24).
22. Cash and cash equivalents
Cash and cash equivalents comprise cash held by the group and short-term bank deposits. The Moody’s prime rating of short
term bank deposits amounting to $5.5 million (2016: $24.6 million) is set out in note 23 under the heading “Credit risk”.
At 31 December 2017, $20,000 (2016: $45,000) of total bank deposits were subject to charges.
23. Financial instruments
Capital risk management
The group manages as capital its debt, which includes the borrowings disclosed in notes 24 to 26 and notes 28 and 29, cash
and cash equivalents and equity attributable to shareholders of the parent, comprising issued ordinary and preference share
capital, reserves and retained earnings as disclosed in notes 30 to 33. The group is not subject to externally imposed capital
requirements.
The directors’ policy in regard to the capital structure of the group is to seek to enhance returns to holders of the company's
ordinary shares by meeting a proportion of the group's funding needs with prior ranking capital and to constitute that capital as
a mix of preference share capital and borrowings from financial institutions and the public debt market, in proportions which
suit, and as respects borrowings that have a maturity profile which suits, the assets that such capital is financing. In so doing,
the directors regard the company’s preference share capital as permanent capital and then seek to structure the group's
borrowings so that shorter term bank debt is used only to finance working capital requirements while debt funding for the
group's development programme is sourced from issues of listed debt securities and medium term borrowings from financial
institutions.
Net debt to equity ratio
Net debt, equity and the net debt to equity ratio at the balance sheet date were as follows:
2017 2016
$’000 $’000
Debt * 220,008 229,702
Cash and cash equivalents (5,545) (24,593)
Investments (2,730) (9,880)
Net debt 211,733 195,229
* Being the book value of long and short term borrowings as detailed in the table below under “Fair value of financial instruments”.
Equity (including non-controlling interests) 276,735 309,550
Net debt to equity ratio 76.5% 66.3%
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23. Financial instruments - continued
Significant accounting policies
Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of
measurement and the basis on which income and expenses are recognised, in respect of each class of financial instrument are
disclosed in “Accounting policies (group)” above.
Categories of financial instruments
Non-derivative financial assets as at 31 December 2017 comprised loans, investments and receivables (including stone and
coal interests) and cash and cash equivalents amounting to $65.2 million (2016: $90.6 million).
Non-derivative financial liabilities as at 31 December 2017 comprised liabilities at amortised cost amounting to $263.5 million
(2016: $280.6 million).
As explained in note 16, conditional arrangements exist for the group to acquire at historic cost the shares in the Indonesian
companies owning rights over certain stone and coal concessions. The directors have attributed a fair value of zero to these
interests in view of the prior claims of loans to the concession owning companies and the present stage of the operations.
Financial risk management objectives
The group manages the financial risks relating to its operations through internal reports which permit the degree and
magnitude of such risks to be assessed. These risks include market risk, credit risk and liquidity risk.
The group seeks to reduce risk by using, where appropriate, derivative financial instruments to hedge risk exposures. The use
of derivative financial instruments is governed by group policies set by the board of directors of the company. The board also
sets policies on foreign exchange risk, interest rate risk, credit risk, the use of non-derivative financial instruments, and the
investment of excess liquidity. Compliance with policies and exposure limits is reviewed on a continuous basis. The group does
not enter into or trade financial instruments, including derivative financial instruments, for speculative purposes.
Market risk
The financial market risks to which the group is primarily exposed are those arising from changes in interest rates and foreign
currency exchange rates.
The group’s policy as regards interest rates is to borrow whenever economically practicable at fixed interest rates, but where
borrowings are raised at floating rates the directors would not normally seek to hedge such exposure. The 2020 sterling notes
and the 2022 dollar notes carry interest at fixed rates of, respectively, 8.75 and 7.5 per cent per annum. In addition, the
company’s preference shares carry an entitlement to a fixed annual dividend of 9 pence per share.
Interest is payable on drawings under Indonesian rupiah term loan facilities varying between 1.2 per cent and 4.8 per cent
(2016: between 1.2 per cent and 4.8 per cent) above the Jakarta Inter Bank Offer Rate with the exception of one bank loan
which bears interest at a fixed rate of 11.5 per cent (2016: 11.5 per cent).
A one per cent increase in interest applied to those financial instruments shown in the table below entitled “Fair value of
financial instruments” as held at 31 December 2017 which carry interest at floating rates would have resulted over a period of
one year in a pre-tax profit (and equity) decrease of approximately $1.3 million (2016: pre-tax profit (and equity) decrease of
$1.1 million).
The group regards the US dollar as the functional currency of most of its operations and formerly sought to ensure that, as
respects that proportion of its investment in the operations that was met by borrowings, it had no material currency exposure
against the US dollar. Accordingly, where borrowings were incurred in a currency other than the US dollar, the group
endeavoured to cover the resultant currency exposure by way of a debt swap or other appropriate currency hedge. The receipt
by REA Kaltim during 2011 of an Indonesian tax assessment on its 2008 profits seeking to disallow, for tax purposes, losses
on certain debt swaps called into question the wisdom of entering into currency hedges.
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Group financial statements
Notes to the consolidated financial statements
continued
23. Financial instruments - continued
In the light of the decision by the Jakarta Tax Court in 2014 in REA Kaltim’s favour regarding the disputed losses, the directors
have considered whether the group should revert to its previous policy of hedging non-dollar exposures against the dollar. They
continue to believe that, given that tax law in Indonesia is uncertain and that precedent is often not taken into account in
Indonesian judicial decisions, the group will be best served going forward by simply maintaining a balance between its
borrowings in different currencies and avoiding any new currency hedging transactions.
Accordingly, the group will in future regard some exposure to currency risk on its non-dollar borrowing as an inherent and
unavoidable risk of its business. Whilst interest rates payable on Indonesian rupiah borrowings are higher than on dollar
borrowings, the directors believe that such higher rates reflect the fact that the Indonesian rupiah is a weak currency and that
the higher cost that such borrowings entail is likely over time to be offset by exchange gains on the borrowings concerned.
The group has never covered, and does not intend in future to cover, the currency exposure in respect of the component of the
investment in its operations that is financed with sterling denominated shareholder capital.
The group’s policy is to maintain a cash balance in sterling sufficient to meet its projected sterling expenditure for a period of
between six and twelve months and a limited cash balance in Indonesian rupiah.
At the balance sheet date, the group had non US dollar monetary items denominated in pounds sterling and Indonesian rupiah.
A 5 per cent strengthening of the pound sterling against the US dollar would have resulted in a loss dealt with in the
consolidated income statement and equity of $2.1 million on the net sterling denominated non-derivative monetary items
(2016: loss $2.3 million). A 5 per cent strengthening of the Indonesian rupiah against the US dollar would have resulted in a
loss dealt with in the consolidated income statement and equity of $8.6 million on the net Indonesian rupiah denominated,
non-derivative monetary items (2016: loss of $6.9 million).
Credit risk
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the group.
The directors consider that the group is not exposed to any major concentrations of credit risk. At 31 December 2017, 90 per
cent of bank deposits were held with banks with a Moody’s prime rating of P1 and 10 per cent with a bank with a Moody’s
prime rating of P2. Substantially all sales of goods are made on the basis of cash against documents or letters of credit. At the
balance sheet date, no trade receivables were past their due dates, nor were any impaired; accordingly no bad debt provisions
were required. The maximum credit risk exposures in respect of the group’s financial assets at 31 December 2017 and
31 December 2016 equal the amounts reported under the corresponding balance sheet headings.
Liquidity risk
Ultimate responsibility for liquidity risk management rests with the board of directors of the company, which has established an
appropriate framework for the management of the group’s short, medium and long-term funding and liquidity requirements.
Within this framework, the board continuously monitors forecast and actual cash flows and endeavours to maintain adequate
liquidity in the form of cash reserves and borrowing facilities while matching the maturity profiles of financial assets and
liabilities. Undrawn facilities available to the group at balance sheet date are disclosed in note 24.
The board reviews the cash forecasting models for the operation of the plantations and compares these with the forecast
outflows for debt obligations and projected capital expenditure programmes for the plantations, applying sensitivities to take
into account perceived major uncertainties. In their review, the directors place the greatest emphasis on the cash flow of the
first two years.
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23. Financial instruments - continued
Non-derivative financial instruments
The following tables detail the contractual maturity of the group’s non-derivative financial liabilities. The tables have been drawn
up based on the undiscounted amounts of the group’s financial liabilities based on the earliest dates on which the group can be
required to discharge those liabilities. The table includes liabilities for both principal and interest.
Weighted Under Between Over 2 Total
average 1 year 1 and 2 years
interest rate years
2017 % $’000 $’000 $’000 $’000
Bank loans 10.9 39,039 51,108 53,575 143,722
US dollar notes - repayable 2022 8.5 1,803 1,803 28,542 32,148
Sterling notes - repayable 2020 10.1 3,793 3,794 45,881 53,468
Non-controlling shareholder loans - US dollar 6.5 7,735 7,315 6,894 21,944
Non-controlling shareholder loans - sterling 10.4 4,624 4,259 3,892 12,775
Trade and other payables, and customer deposits – 43,255 – – 43,255
100,249 68,279 138,784 307,312
Weighted Under Between Over 2 Total
average 1 year 1 and 2 years
interest rate years
2016 % $’000 $’000 $’000 $’000
Bank loans 11.0 38,269 15,455 83,210 136,934
US dollar notes - repayable 2017 8.5 21,813 – – 21,813
US dollar notes - repayable 2022 8.5 901 1,803 30,344 33,048
Sterling notes - repayable 2015/2017 10.4 11,231 – – 11,231
Sterling notes - repayable 2020 10.1 3,434 3,436 45,094 51,964
Non-controlling shareholder loans - US dollar 6.0 460 3,026 5,593 9,079
Non-controlling shareholder loans - sterling 10.6 504 2,101 3,703 6,308
Trade and other payables, and customer deposits – 31,385 – – 31,385
107,997 25,821 167,944 301,762
At 31 December 2017, the group’s non-derivative financial assets (other than receivables) comprised cash, investments and
deposits of $8.3 million (2016: $34.5 million) carrying a weighted average interest rate of 2.8 per cent (2016: nil per cent) all
having a maturity of under one year, and stone and coal interests of $37.9 million (2016: $37.2 million) details of which are
given in note 16.
Fair value of financial instruments
The table below provides an analysis of the book values and fair values of financial instruments, excluding receivables and trade
payables and Indonesian coal interests, as at the balance sheet date. Investments, cash and deposits, dollar notes and sterling
notes are classified as level 1 in the fair value hierarchy prescribed by IFRS 7 “Financial instruments: disclosures”. (Level 1
includes instruments where inputs to the fair value measurements are quoted prices in active markets). All other financial
instruments are classified as level 3 in the fair value hierarchy. (Level 3 includes instruments which have no observable market
data to provide inputs to the fair value measurements). No reclassifications between levels in the fair value hierarchy were
made during 2017 (2016: none).
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Group financial statements
Notes to the consolidated financial statements
continued
23. Financial instruments - continued
2017 2017 2016 2016
Book value Fair value Book value Fair value
$’000 $’000 $’000 $’000
Cash and deposits* 5,545 5,545 24,593 24,593
Investments** 2,730 2,730 9,880 9,880
Bank debt - within one year** (295) (295) – –
Bank debt – within one year* (27,845) (27,845) (28,628) (28,628)
Bank debt - after more than one year** (17,936) (17,936) – –
Bank debt - after more than one year* (79,055) (79,055) (97,771) (97,771)
Loans from non-controlling shareholder - after more than one year* (29,864) (29,864) (12,469) (12,469)
US dollar notes - repayable 2017** – – (20,048) (20,206)
US dollar notes - repayable 2022** (23,649) (23,074) (23,646) (24,035)
Sterling notes - repayable 2015/2017** – – (10,103) (10,143)
Sterling notes - repayable 2020** (41,364) (42,857) (37,037) (38,553)
Net debt (211,733) (212,651) (195,229) (197,332)
* Bearing interest at floating rates
** Bearing interest at fixed rates
The fair values of cash and deposits and bank debt approximate their carrying values since these carry interest at current
market rates. The fair value of investments approximates their carrying value. The fair values of the dollar notes and sterling
notes are based on the latest prices at which those notes were traded prior to the balance sheet dates.
Changes in liabilities arising from financing activities and analysis of movement in borrowings
The table below details changes in the group's liabilities arising from finance activities, including both cash and non-cash
changes. Liabilities from financing activities are those for which cash flows were, or future cash flows will be classified in the
group's consolidated cash flow statement as cashflows from financing activities.
At 1 Financing Non-cash At 31
January cash flows other December
2017 changes 2017
$’000 $’000 $’000 $’000
Bank debt (126,399) 398 870 (125,131)
Loan from non-controlling shareholder (12,469) (16,586) (809) (29,864)
US dollar notes - repayable 2017 (20,048) 20,156 (108) –
US dollar notes - repayable 2022 (23,646) – (3) (23,649)
Sterling notes - repayable 2017 (10,103) 11,154 (1,051) –
Sterling notes - repayable 2020 (37,037) – (4,327) (41,364)
Total liabilities from financing activities (229,702) 15,122 (5,428) (220,008)
24. Bank loans
2017 2016
$’000 $’000
Bank loans 125,131 126,399
The bank loans are repayable as follows:
On demand or within one year 28,140 28,628
Between one and two years 44,766 5,997
After two years 52,225 91,774
125,131 126,399
Amount due for settlement within 12 months (shown under current liabilities) 28,140 28,628
Amount due for settlement after 12 months 96,991 97,771
125,131 126,399
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All bank loans are denominated in Indonesian rupiah (2016: all denominated in Indonesian rupiah) and are at floating rates,
thus exposing the group to interest rate risk. The weighted average interest rate in 2017 was 10.9 per cent (2016: 11 per
cent). Bank loans of $125.1 million (2016: $126.4 million) are secured on the land, plantations, property, plant and equipment
and certain current assets owned by REA Kaltim, PT Kutai Mitra Sejahtera, PT Putra Bongan Jaya and PT Sasana Yudha Bhakti
having an aggregate book value of $366 million (2016: $343 million), and are the subject of an unsecured guarantee by the
company and REA Kaltim. The banks are entitled to have recourse to their security on usual banking terms.
Under the terms of its bank facilities, certain plantation subsidiaries are restricted to an extent in the payment of interest on
borrowings from, and on the payment of dividends to, other group companies. The directors do not believe that the applicable
covenants will affect the ability of the company to meet its cash obligations.
At the balance sheet date, the group had undrawn Indonesian rupiah denominated facilities of $7.9 million (2016: $14.3
million).
25. Sterling notes
The sterling notes comprise £31.9m nominal of 8.75 per cent guaranteed 2020 sterling notes (2016: £31.9 million nominal of
8.75 per cent guaranteed 2020 sterling notes) issued by the company’s subsidiary, REAF.
As at 31 December 2016 the sterling notes also included £8.3 million nominal of 9.5 per cent guaranteed 2015/17 sterling
notes. £298,000 of these notes were purchased for cancellation prior to the repayment date and the balance were repaid on
21 December 2017 at par plus accrued interest.
The sterling notes are guaranteed by the company and another wholly owned subsidiary of the company, REAS, and are
secured principally on unsecured loans made by REAS to Indonesian plantation operating subsidiaries of the company. Unless
previously redeemed or purchased and cancelled by the issuer, the sterling notes are repayable on 31 August 2020.
The repayment obligation in respect of the sterling notes of £31.9 million ($42.6 million) is carried in the balance sheet net of
the unamortised balance of the note issuance costs.
If a person or group of persons acting in concert obtains the right to exercise more than 50 per cent of the votes that may
generally be cast at a general meeting of the company, each holder of sterling notes has the right to require that the notes held
by such holder be repaid at 101 per cent of par, plus any interest accrued thereon up to the date of completion of the
repayment.
26. US dollar notes
The US dollar notes comprise $24.0 million nominal of 7.5 per cent dollar notes 2022 (“2022 dollar notes”) (2016: $24.0
million nominal of 2022 dollar notes) and are stated net of the unamortised balance of the note issuance costs.
As at 31 December 2016 the US dollar notes also included $20.2 million nominal of 7.5 per cent dollar notes 2017 (“2017
dollar notes”) which the company repaid on 30 June 2017 at par plus accrued interest.
The 2022 US dollar notes are unsecured obligations of the company and are repayable on 30 June 2022.
The repayment obligation in respect of the 2022 US dollar notes of $24.0 million is carried in the balance sheet net of the
unamortised balance of the note issuance costs.
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Group financial statements
Notes to the consolidated financial statements
continued
27. Deferred tax
The following are the major deferred tax assets and liabilities recognised by the group and the movements thereon during the
year and preceding year:
Deferred tax assets / (liabilities) Plantings Other Income/ Agricultural Tax Total
property, expenses* produce losses
plant and and other
equipment inventory
$’000 $’000 $’000 $’000 $’000 $’000
At 1 January 2016 (45,095) (24,498) (15,983) (409) 15,549 (70,436)
Credit/(charge) to income for the year 1,397 (280) 2,308 (207) (3,591) (373)
Credit to comprehensive income for the year** – – 143 – – 143
Exchange differences*** 475 2,053 (318) 2 405 2,617
At 31 December 2016 (43,223) (22,725) (13,850) (614) 12,363 (68,049)
Credit/(charge) to income for the year 49 1,098 (269) 312 (2,636) (1,446)
Credit to comprehensive income for the year** – – 41 – – 41
Exchange differences*** (249) (3) 48 – (75) (279)
At 31 December 2017 (43,423) (21,630) (14,030) (302) 9,652 (69,733)
Deferred tax assets – 4 211 – 9,652 9,867
Deferred tax liabilities (43,423) (21,634) (14,241) (302) – (79,600)
At 31 December 2017 (43,423) (21,630) (14,030) (302) 9,652 (69,733)
Deferred tax assets – 43 367 8 12,363 12,781
Deferred tax liabilities (43,223) (22,768) (14,217) (622) – (80,830)
At 31 December 2016 (43,223) (22,725) (13,850) (614) 12,363 (68,049)
* Includes income, gains or expenses recognised for reporting purposes, but not yet charged to or allowed for tax.
** Relating to actuarial losses.
*** Included in the consolidated statement of comprehensive income.
At the balance sheet date, the group had unused tax losses of $39.7 million (2016: $50.5 million) available to be applied against
future profits. A deferred tax asset of $9.7 million (2016: $12.4 million) has been recognised in respect of these losses, which
are expected to be used in the future based on the group’s projections. Tax losses of $3.5 million (2016: nil) incurred by the
Indonesian plantation subsidiaries have not been recognised in deferred tax as these may not be recoverable against future
taxable profits within the statutory five-year limit (see also note 9). A tax loss of $788,000 incurred by the group’s coal
subsidiary in 2017 (2016: tax loss $462,000) has not been recognised and at the balance sheet date; tax losses aggregating
$7.7 million incurred by the group’s coal subsidiary have not been recognised; these tax losses expire after five years.
At the balance sheet date, the aggregate amount of temporary differences associated with undistributed earnings of
subsidiaries for which deferred tax liabilities have not been recognised was $8.6 million (2016: $6.1 million). No liability has
been recognised in respect of these differences because the group is in a position to control the reversal of the temporary
differences and it is probable that such differences will not reverse significantly in the foreseeable future.
The temporary difference of $43.4 million (2016: $43.2 million) in respect of plantings arises from their recognition prior to
2015 at fair value in the group accounts, compared with their historic base cost in the local accounts of overseas subsidiaries.
From 2015 onwards this temporary difference reverses as the plantings are depreciated over their remaining useful life.
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28. Other loans and payables
2017 2016
$’000 $’000
Indonesian retirement benefit obligations 8,725 7,037
Loans from non-controlling shareholder 29,864 12,469
38,589 19,506
Repayable as follows:
On demand or within one year (shown under current liabilities) 10,469 519
In the second year 10,469 5,195
In the third to fifth years inclusive 11,497 9,871
After five years 6,154 3,921
Amount due for settlement after 12 months 28,120 18,987
38,589 19,506
Liabilities by currency:
Sterling 10,441 4,746
US dollar 19,423 7,723
Indonesian rupiah 8,725 7,037
38,589 19,506
Further details of the retirement benefit obligations are set out in note 37. The directors estimate that the fair value of other
loans and payables approximates their carrying value.
29. Trade and other payables
2017 2016
$’000 $’000
Trade purchases and ongoing costs 11,520 12,309
Customer deposits 23,784 14,926
Other tax and social security 4,054 3,730
Accruals 14,903 11,172
Other payables 7,951 1,289
62,212 43,426
The average credit period taken on trade payables is 68 days (2016: 30 days).
The directors estimate that the fair value of trade and other payables approximates their carrying value.
30. Share capital
2017 2016
£’000 £’000
Authorised (in sterling):
85,000,000 – 9 per cent cumulative preference shares of £1 each (2016: 85,000,000) 85,000 85,000
50,000,000 – ordinary shares of 25p each (2016: 50,000,000) 12,500 12,500
97,500 97,500
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Group financial statements
Notes to the consolidated financial statements
continued
30. Share capital - continued
2017 2016
$’000 $’000
Issued and fully paid (in US dollars):
72,000,000 – 9 per cent cumulative preference shares of £1 each (2016: 63,641,232) 116,516 105,414
40,509,529 – ordinary shares of 25p each (2016: 40,509,529) 17,013 17,013
132,500 – ordinary shares of 25p each held in treasury (2016: 132,500) (1,001) (1,001)
132,528 121,426
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution and
resolved to be distributed, of a fixed cumulative preferential dividend of 9 per cent per annum on the nominal value of the
shares and to repayment, on a winding up of the company, of the amount paid up on the preference shares and any arrears of
the fixed dividend in priority to any distribution on the ordinary shares. Subject to the rights of the holders of preference shares,
holders of ordinary shares are entitled to share equally with each other in any dividend paid on the ordinary share capital and,
on a winding up of the company, in any surplus assets available for distribution among the members.
Changes in share capital:
•
On 16 October 2017 8,358,768 preference shares were issued, fully paid, by way of a placing at £1 per share to
qualified investors (total consideration £8,359,000 - $11,102,000. The middle-market price at close of business on
9 October 2017 (being the date at which the terms of issue were fixed) was £1.045.
There have been no changes in ordinary shares held in treasury during the year.
31. Share premium account
$’000
At 1 January 2016 30,683
Issue of new ordinary shares (cash) 12,289
Cost of issues (387)
At 31 December 2016 42,585
Cost of issues (184)
At 31 December 2017 42,401
32. Translation reserve
2017 2016
$’000 $’000
Beginning of year (39,127) (46,282)
Exchange differences on translation of foreign operations (11,419) 5,222
Exchange differences on deferred tax (279) 2,617
Attributable to non-controlling interests (72) (684)
End of year (50,897) (39,127)
33. Retained earnings
2017 2016
$’000 $’000
Beginning of year 161,839 187,481
Sale of non-controlling shareholding in a subsidiary 807 (7,416)
Loss for the year after preference dividend (27,572) (18,226)
End of year 135,074 161,839
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34. Non-controlling interests
2017 2016
$’000 $’000
Beginning of year 22,827 1,652
Sale of non-controlling shareholding in a subsidiary – 21,401
Share of result for the year (5,270) (910)
Exchange translation differences 72 684
End of year 17,629 22,827
35. Reconciliation of operating loss to operating cash flows
2017 2016
$’000 $’000
Operating loss (2,164) (5,026)
Amortisation of intangible assets 811 74
Depreciation of property, plant and equipment 21,419 20,766
Decrease / (increase) in fair value of agricultural produce inventory 1,137 (632)
Decrease in value of growing produce 110 –
Amortisation of prepaid operating lease rentals – 432
Amortisation of sterling and dollar note issue expenses 648 584
Loss on disposal of property, plant and equipment – 12
Operating cash flows before movements in working capital 21,961 16,210
Decrease / (increase) in inventories (excluding fair value movements) 3,133 (3,944)
(Increase) / decrease in receivables 649 760
Increase in payables 20,174 13,136
Exchange translation differences (101) (791)
Cash generated by operations 45,816 25,371
Taxes paid (6,627) (2,313)
Tax refunds received 5,398 241
Interest paid (24,917) (20,701)
Net cash from operating activities 19,670 2,598
No additions to property, plant and equipment during the year were financed by new finance leases (2016: $nil).
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Group financial statements
Notes to the consolidated financial statements
continued
36. Movement in net borrowings
2017 2016
$’000 $’000
Change in net borrowings resulting from cash flows:
(Decrease) / increase in cash and cash equivalents (19,050) 8,874
Net decrease / (increase) in bank borrowings 398 (3,935)
Increase in related party borrowings (16,586) (12,469)
(35,238) (7,530)
Redemption of 2017 sterling notes 11,154 –
Redemption of 2017 dollar notes 20,156 –
Issue of 2022 dollar notes – (345)
Amortisation of sterling note issue expenses (537) (318)
Amortisation of dollar note issue expenses (111) (266)
(4,576) (8,459)
Currency translation differences (4,780) 2,036
Net borrowings at beginning of year (205,109) (198,686)
Net borrowings at end of year (214,465) (205,109)
37. Retirement benefit obligations
United Kingdom
The company is the principal employer of the R.E.A. Pension Scheme (the “Scheme”) and a subsidiary company is a participating
employer. The Scheme is a multi-employer contributory defined benefit scheme with assets held in a trustee-administered fund,
which has participating employers outside the group. The Scheme is closed to new members.
As the Scheme is a multi-employer scheme, in which the employers are unable to identify their respective shares of the
underlying assets and liabilities (because there is no segregation of the assets), and does not prepare valuations on an IAS 19
basis, the group accounts for the Scheme as if it were a defined contribution scheme. The company’s share of the total
employer contribution is 5.4 per cent.
A non-IAS 19 valuation of the Scheme was last prepared, using the attained age method, as at 31 December 2014. This
method had been adopted in the previous valuation as at 31 December 2011 and in earlier valuations, as it was considered the
appropriate method of calculating future service benefits as the Scheme is closed to new members. At 31 December 2014 the
Scheme had an overall marginal surplus of assets, when measured against the Scheme’s technical provisions, of £202,000 -
$315,000. The technical provisions were calculated using assumptions of an investment return of 4.35 per cent pre-retirement
and 2.80 per cent post-retirement and annual increases in pensionable salaries of 3.2 per cent. The basis for the inflationary
revaluation of deferred pensions and increases to pensions in payment was changed from the Retail Prices Index (RPI) to the
Consumer Prices Index (CPI) with effect from 1 January 2011 in line with the statutory change, except that the change does
not apply to pension accrual from 1 January 2006, where the RPI still applies. The rates of increase in the RPI and the CPI
were assumed to be 3.2 per cent and 2.45 per cent respectively. It was further assumed that both non-retired and retired
members’ mortality would reflect S2PXA tables (light version) at 100 per cent and that non-retired members would take on
retirement the maximum cash sums permitted from 1 January 2015. Had the Scheme been valued at 31 December 2014
using the projected unit method and the same assumptions, the overall result would have been similar.
The Scheme has agreed a statement of funding principles with the principal employer and has also agreed a schedule of
contributions with participating employers covering normal contributions which are payable at a rate calculated to cover future
service benefits under the Scheme.
The Scheme had also agreed a recovery plan with participating employers which provided for recovery of the deficit shown by
the 31 December 2011 valuation through the payment of quarterly additional contributions over the period from 1 January
2013 to 30 September 2018. No contributions under that recovery plan were required to be made in 2017 nor is any
projected for 2018.
There are no agreed allocations of any surplus on either the wind-up of the Scheme or on any participant’s withdrawal from the
Scheme.
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37. Retirement benefit obligations - continued
The sensitivity of the surplus as at 31 December 2014 to variations in certain of the principal assumptions underlying the
actuarial valuation as at that date is summarised below:
Decrease in post-retirement investment returns by 0.1%
Increase in base table mortality rates by 10%
Increase in long term rate of mortality by 0.25%
(Decrease) / increase
in surplus
$’000
(651)
1,439
(617)
The next actuarial valuation will be made as at 31 December 2017. The valuation will not be available until the second half of
this year and is therefore not reflected in these financial statements.
The company is responsible for contributions payable by other (non group) employers in the Scheme; such liability will only arise if
other (non group) employers do not pay their contributions. There is no expectation of this and, therefore, no provision has been
made.
Indonesia
In accordance with Indonesian labour laws, group employees in Indonesia are entitled to lump sum payments on retirement at
the age of 55 years. The group records a provision in the financial statements which is not financed by a third party:
accordingly there are no separate assets set aside to fund these entitlements. The provision is assessed at each balance
sheet date by an independent actuary using the projected unit credit method. The principal assumptions used were as follows:
2017 2016
Discount rate (per cent) 7.19 8.45
Salary increases per annum (per cent) 6 6
Mortality table (Indonesia) (TM1) 111-2011 111-2011
Retirement age (years) 55 55
Disability rate (per cent of the mortality table) 10 10
The movement in the provision for employee service entitlements was as follows:
2017 2016
$’000 $’000
Balance at 1 January 7,037 5,651
Current service cost 1,208 958
Interest expense 595 533
Actuarial loss recognised in statement of comprehensive income – 571
Exchange (76) 139
Paid during the year (202) (815)
Balance at 31 December (see note 28) 8,562 7,037
The amounts recognised in administrative expenses in the consolidated income statement were as follows:
2017 2016
$’000 $’000
Current service cost 1,208 958
Interest expense 595 533
1,803 1,491
Amount included as additions to property, plant and equipment – (114)
1,803 1,377
Estimated lump sum payments to Indonesian employees on retirement in 2018 are $504,000 (2017: $519,000).
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Group financial statements
Notes to the consolidated financial statements
continued
38. Related party transactions
Transactions between the company and its subsidiaries, which are related parties, have been eliminated on consolidation and
are not disclosed in this note. Transactions between the company and its subsidiaries are dealt with in the company’s individual
financial statements.
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate for each
of the categories specified in IAS 24 “Related party disclosures”. Further information about the remuneration of, and fees paid
in respect of services provided by, individual directors is provided in the audited part of the “Directors’ remuneration report”.
2017 2016
$’000 $’000
Short term benefits 1,364 1,405
Termination benefits 258 –
1,622 1,405
Loan from related party
During the year, REA Trading Limited, a related party, made unsecured loans to the company on commercial terms. The maximum
amount was $7.4 million, all of which had been repaid by 31 December. This disclosure also complies with the requirements of
the Listing Rule 9.8.4.
39. Rates of exchange
2017 2017 2016 2016
Closing Average Closing Average
Indonesian rupiah to US dollar 13,548 13,400 13,436 13,369
US dollar to sterling 1.3435 1.29 1.2226 1.36
40. Events after the reporting period
On 25 April 2018 the company announced the sale of PT REA Kaltim Plantation’s shareholding in PT Putra Bongan Jaya
(“PBJ”), its 95 per cent subsidiary. The sale is conditional, inter alia, upon approval by the company’s shareholders and
necessary consents of the Indonesian regulatory authorities. The gross sale proceeds are estimated to amount to approximately
$85 million, from which are to be deducted borrowings from PBJ’s bankers projected at $26.0 million at completion. As a
result, the net proceeds to the group are expected to amount, net of expenses, to approximately $57 million. Such net proceeds
will be applied substantially in the reduction of group indebtedness.
Completion is not expected to occur before 31 August 2018 and the sale agreement will lapse if the conditions have not been
satisfied by 31 January 2019. The purchaser has deposited with the group, by way of an advance of the purchase price, the
sum of $8 million. Should the agreement for the sale of PBJ not become unconditional, such amount will be repayable.
The estimated sums disclosed above in relation to the gross and net sale proceeds will be recalculated immediately prior to
completion. Based on current projections, the tax impact of the eventual sale is expected to be minimal.
The PBJ plantation is a recently planted property but is not currently profitable. Accordingly, its sale will not have a material
negative impact on the immediate profit outlook for the group.
Otherwise there have been no material post balance sheet events that would require disclosure in, or adjustment to, these
financial statements.
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41. Resolution of competing rights over certain plantation areas
During 2017, the overall area of the group’s fully titled agricultural land increased from 70,584 hectares to 76,127 hectares
following completion of the transfer to SYB and a local minority shareholder of PU shares the subject of exchange
arrangements agreed in 2015 with PT Ade Putra Tanrajeng (“APT”). PU holds fully titled land areas of 9,097 hectares located
on the southern side of the Belayan River opposite the SYB northern areas and is linked by a government road to the southern
REA Kaltim areas. By way of exchange, SYB has agreed to transfer to APT 3,554 hectares of fully titled SYB land and has
relinquished 2,212 hectares of untitled land allocations, both areas being the subject of overlapping mineral rights held by APT.
Pending completion of the transfer of the 3,554 hectares, APT and its associates have been granted access to commence
mining in this area.
42. Contingent liabilities
In furtherance of Indonesian government policy which requires the owners of oil palm plantations to develop smallholder
plantations, during 2009 and 2010 PT REA Kaltim Plantations (“REA Kaltim”) and PT Sasana Yudha Bhakti (“SYB”), both
subsidiaries of the company, entered into agreements with three cooperatives to develop and manage land owned by the
cooperatives as oil palm plantations. To assist with the funding of such development, the cooperatives have concluded various
long term loan agreements with Bank Pembangunan Daerah Kalimantan Timur (“Bank BPD”), a regional development bank,
under which the cooperatives may borrow in aggregate up to Indonesian rupiah 157 billion ($11.6 million) with amounts
borrowed repayable over 14 years and secured on the lands under development (“the bank facilities”). REA Kaltim has
guaranteed the obligations of two cooperatives as to payments of principal and interest under the respective bank facilities and,
in addition, has committed to lend to the cooperatives any further funds required to complete the agreed development. REA
Kaltim is entitled to a charge over the developments when the bank facilities have been repaid in full. SYB has guaranteed the
obligations of the third cooperative on a similar basis.
On maturity of the developments, the cooperatives are required to sell all crops from the developments to REA Kaltim and SYB
respectively and to permit repayment of indebtedness to Bank BPD, REA Kaltim and SYB respectively out of the sale
proceeds.
As at 31 December 2017 the aggregate outstanding balances owing by the three cooperatives to Bank BPD amounted to
Indonesian rupiah 113.3 billion ($8.4 million) (2016: Indonesian rupiah 121.4 billion - $9.0 million).
43. Operating lease commitments
The group leases premises under operating leases in London, Balikpapan, and Singapore. These leases, which are renewable,
run for periods of between 6 months and 10 years, and do not include contingent rentals, or options to purchase the properties.
The future minimum lease payments under operating leases are as follows:
2017 2016
$’000 $’000
Within one year 304 212
In the second to fifth year inclusive 1,049 1,062
After five years 906 996
2,259 2,270
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Company financial statements
Company balance sheet
as at 31 December 2017
2017 2016
Note $’000 $’000
Non-current assets
Investments (iv) 264,892 269,827
Deferred tax assets (v) 843 929
Total non-current assets 265,735 270,756
Current assets
Trade and other receivables (vi) 5,482 26,146
Cash and cash equivalents (vii) 724 614
Total current assets 6,206 26,760
Total assets 271,941 297,516
Current liabilities
Trade and other payables (viii) (6,710) (4,627)
US dollar notes (ix) – (20,048)
Amount owed to group undertaking (x) – (13,765)
Total current liabilities (6,710) (38,440)
Non-current liabilities
US dollar notes (ix) (23,649) (23,646)
Amount owed to group undertaking (x) (43,433) (38,944)
Total non-current liabilities (67,082) (62,590)
Total liabilities (73,792) (101,030)
Net assets 198,149 196,486
Equity
Share capital (xi) 132,528 121,426
Share premium account (xii) 42,401 42,585
Exchange reserve (xii) (4,300) (4,300)
Profit and loss account (xii) 27,520 36,775
Total equity 198,149 196,486
The company reported a loss in the financial year ended 31 December 2017 of $1.5 million (2016: loss $2.2 million).
Approved by the board on 26 April 2018 and signed on behalf of the board.
DAVID J BLACKETT
Chairman
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Company financial statements
Company statement of changes in equity
for the year ended 31 December 2017
Share Share Exchange Profit Total
capital premium reserve and loss
Note $’000 $’000 $’000 $’000 $’000
At 1 January 2016 120,288 30,683 (4,300) 42,334 189,005
Total comprehensive income (xii) – – – 1,843 1,843
Issue of new ordinary shares (cash) (xi) 1,138 11,902 – – 13,040
Dividends to preference shareholders (iii) – – – (7,402) (7,402)
At 31 December 2016 121,426 42,585 (4,300) 36,775 196,486
Total comprehensive income (xii) – – – (1,478) (1,478)
Issue of new preference shares (cash) (xi) 11,102 (184) – – 10,918
Dividends to preference shareholders (iii) – – – (7,777) (7,777)
At 31 December 2017 132,528 42,401 (4,300) 27,520 198,149
There are no gains or losses other than those recognised in the profit and loss account.
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Company financial statements
Company cash flow statement
for the year ended 31 December 2017
2017 2016
Note $’000 $’000
Net cash inflow / (outflow) from operating activities (xiv) 13,875 (6,925)
Investing activities
Interest received 7,104 7,592
Dividends and other distributions received from subsidiaries (xvi) – 4,028
Repayment of loans by subsidiary companies * 9,533 –
New loans made to subsidiary companies * – (8,033)
Further investment in stone and coal interests (2,339) (1,860)
Net cash used in investing activities 14,298 (1,727)
Financing activities
Preference dividends paid (iii) (7,777) (7,402)
Proceeds of issue of ordinary shares, less costs of issue – 13,040
Proceeds of issue of preference shares, less costs of issue (xi) 10,918 –
Proceeds of issue of 2022 dollar notes, less costs of issue – (44)
Redemption of 2017 dollar notes (ix) (20,156) (45)
Repayment of loan to subsidiary company (x) (11,156) –
New borrowings from related party (xvi) 7,400 –
Repayment of borrowings from related party (xvi) (7,400) –
Net cash (to) / from financing activities (28,171) 5,549
Cash and cash equivalents
Net increase in cash and cash equivalents 2 351
Cash and cash equivalents at beginning of year 614 278
Effect of exchange rate changes 108 (15)
Cash and cash equivalents at end of year (vii) 724 614
* Excluding amounts dealt with within “Further investment in stone and coal interests”
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Company financial statements
Accounting policies (company)
The accounting policies of R.E.A. Holdings plc (the
“company”) are the same as those of the group, save as
modified below.
Basis of accounting
Financial risk
The company’s financial risk is managed as part of the group’s
strategy and policies as discussed in note 23 to the
consolidated financial statements.
The company financial statements are set out on pages 110
to 122.
Taxation
Separate financial statements of the company are required by
the Companies Act 2006, and these have been prepared in
accordance with International Financial Reporting Standards
(IFRS) as endorsed for use by the European Union as at the
date of approval of the financial statements and therefore
comply with Article 4 of the EU IAS Regulation. The
statements are prepared under the historic cost convention
except where otherwise stated in the accounting policies.
By virtue of section 408 of the Companies Act 2006, the
company is exempted from presenting a profit and loss
account.
Current tax including UK corporation tax and foreign tax is
provided at amounts expected to be paid (or recovered) using
the tax rates and laws that have been enacted or substantially
enacted by the balance sheet date. Deferred tax is calculated
on the liability method. Deferred tax is provided on a non
discounted basis on timing and other differences which are
expected to reverse, at the rate of tax likely to be in force at
the time of reversal. Deferred tax is not provided on timing
differences which, in the opinion of the directors, will probably
not reverse. Deferred tax assets are only recognised to the
extent that it is regarded as more likely than not that there will
be suitable taxable profits from which the future reversal of
timing differences can be deducted.
Presentational currency
Leases
No assets are held under finance leases. Rentals under
operating leases are charged to profit and loss account on
a straight-line basis over the lease term.
The financial statements of the company are presented in
US dollars which is also considered to be the currency of the
primary economic environment in which the company
operates. References to “$” or “dollar” in these financial
statements are to the lawful currency of the United States
of America.
Adoption of new and revised standards
The directors do not expect that the adoption of the standards
listed on page 80 in Accounting policies (group) will have a
material impact on the financial statements of the company in
future periods.
Investments
The company’s investments in its subsidiaries are stated at cost
less any provision for impairment. Impairment provisions are
charged to the profit and loss account. Dividends received
from subsidiaries are credited to the company’s profit and loss
account.
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Company financial statements
Notes to the company financial statements
(i)
Critical accounting judgements and key sources of estimation uncertainty
In the application of the company’s accounting policies, which are described on page 113, the directors are required to make
judgements, estimates and assumptions; these are based on historical experience and other factors that are considered to be
relevant, and are reviewed on a regular basis. Actual values of assets and amounts of liabilities may differ from estimates.
Revisions to estimates are recognised in the period in which the estimates are revised.
In the opinion of the directors, all critical accounting judgements and key sources of estimation uncertainty relate to the group’s
operations as disclosed in note 1 to the consolidated financial statements and no such judgements or estimates apply to the
company’s financial statements.
(ii)
Auditor’s remuneration
The remuneration of the company’s auditor is disclosed in note 5 to the company’s consolidated financial statements as
required by section 494(4)(a) of the Companies Act 2006.
(iii) Dividends
2017 2016
$’000 $’000
Amounts recognised as distributions to equity holders:
Preference dividends of 9p per share (2016: 9p per share) 7,777 7,402
7,777 7,402
Investments
(iv)
2017 2016
$’000 $’000
Shares in subsidiaries 91,775 91,775
Loans 173,117 178,052
264,892 269,827
The movements were as follows:
Shares Loans
$’000 $’000
At 1 January 2016 91,775 178,714
Additions to loans – 10,846
Effect of exchange – (11,508)
At 31 December 2016 91,775 178,052
Repayment of loans – (13,030)
Additions to loans – 2,763
Effect of exchange – 5,332
At 31 December 2017 91,775 173,117
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The subsidiaries at the year end, together with their countries of incorporation, activity, registered office address and proportion
of ownership, are listed below. Details of UK dormant subsidiaries are not shown.
Class of Percentage
Subsidiary Activity Registered Office shares owned
Makassar Investments Limited (Jersey) Sub holding company Fifth floor, 37 Esplanade, St Helier, Jersey JE1 2TR Ordinary 100.0
PT Cipta Davia Mandiri (Indonesia) Plantation agriculture Gedung PAM Tower Lt.9 JL Jend. Sudirman Stal Kuda, Komp. Ordinary 80.8
BSB No. 47 RT 19, Kelurahan Damai Bahagia, Kecamatan
Balikpapan Selatan 76114 Kalimantan Timur Indonesia
PT Kartanegara Kumala Sakti (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
PT KCC Resources Indonesia (Indonesia) Stone and coal operations Plaza 5 Pondok Indah Blok B.06, JL Margaguna Raya, Gandaria Ordinary 95.0
Utara, Kebayoran Baru, Jakarta Selatan 12140
PT Kutai Mitra Sejahtera (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
PT Persada Bangun Jaya (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
PT Putra Bongan Jaya (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
PT REA Kaltim Plantations (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 85.0
PT Sasana Yudha Bhakti (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
PT Prasetia Utama (Indonesia) Plantation agriculture As for PT Cipta Davia Mandiri Ordinary 80.8
KCC Resources Limited (England and Wales) Sub holding company First Floor, 32-36 Great Portland Street, London W1W 8QX Ordinary 100.0
REA Finance B.V. (Netherlands) Group finance Amstelveenseweg 760, 1081 JK, Amsterdam, Netherlands Ordinary 100.0
R.E.A. Services Limited (England and Wales) Group finance and services First Floor, 32-36 Great Portland Street, London W1W 8QX Ordinary 100.0
REA Services Private Limited (Singapore) Group services 16 Collyer Quay #17-00 Singapore 049318 Ordinary 100.0
The entire shareholdings in Makassar Investments Limited, KCC Resources Limited, R.E.A. Services Limited, REA Finance B.V.
and REA Services Private Limited are held directly by the company. All other shareholdings are held by subsidiaries.
Covenants contained in credit agreements between certain of the company’s plantation subsidiaries and banks restrict the
amount of dividend that may be paid to the UK without the consent of the banks to certain proportions of the relevant
subsidiaries’ pre-tax profits. The directors do not consider that such restrictions will have any significant impact on the liquidity
risk of the company.
A dormant UK subsidiary, Jentan Plantations Limited, company registration number 06662767, has taken advantage of the
exemption pursuant to Companies Act 2006 s394A from preparing and filing individual accounts.
(v)
$’000
Deferred tax asset
At 1 January 2016 978
Effect of change in tax rate (49)
At 31 December 2016 929
Charge to income for the year (86)
At 31 December 2017 843
There were no deferred tax liabilities at 1 January 2016, 31 December 2016 or 31 December 2017.
At the balance sheet date, the company had unused tax losses of $4.7 million (2016: $4.9 million) available to be applied
against future profits. A deferred tax asset of $843,000 (2016: $929,000) has been recognised in respect of these losses as
the company considers, based on financial projections, that these losses will be utilised.
The aggregate amount of temporary differences associated with undistributed earnings of subsidiaries for which tax liabilities
have not been recognised are disclosed in note 27 to the consolidated financial statements.
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Company financial statements
Notes to the company financial statements (continued)
Trade and other receivables
(vi)
2017 2016
$’000 $’000
Amount owing by group undertakings 5,398 26,035
Other debtors 71 88
Prepayments and accrued income 13 23
5,482 26,146
The directors consider that the carrying amount of trade and other receivables approximates their fair value. The amounts
owing by group undertakings are non-interest bearing and repayable on demand.
(vii) Cash and cash equivalents
Cash and cash equivalents comprise short-term bank deposits. The Moody’s prime ratings of these deposits amounting to
$724,000 (2016: $614,000) is set out in note 23 to the consolidated financial statements under the heading “Credit risk”.
(viii) Trade and other payables
2017 2016
$’000 $’000
Amount owing to group undertakings 2,202 561
Other creditors 25 442
Accruals 4,483 3,624
6,710 4,627
The directors consider that the carrying amount of trade and other payables approximates their fair value. The amounts owing
to group undertakings are non-interest bearing and repayable on demand.
(ix) US dollar notes
The US dollar notes comprise $24.0 million nominal of 7.5 per cent dollar notes 2022 (“2022 dollar notes”) (2016: $24.0
million nominal of 2022 dollar notes) and are stated net of the unamortised balance of the note issuance costs.
As at 31 December 2016 the US dollar notes also included $20.2 million nominal of 7.5 per cent dollar notes 2017 (“2017
dollar notes”) which the company repaid on 30 June 2017 at par plus accrued interest.
The 2022 dollar notes are unsecured obligations of the company and are repayable on 30 June 2022.
The repayment obligation in respect of the 2022 US dollar notes of $24.0 million is carried in the balance sheet net of the
unamortised balance of the note issuance costs.
(x)
Amount owed to group undertaking
Amount owed to group undertaking comprises an unsecured interest-bearing loan of £32.3m ($43.4 million) from REA
Finance B.V. At the end of 2016 there were two unsecured interest-bearing loans totalling £43.1m ($52.7 million) of which
£10.8m ($14.5 million) was repaid during 2017.
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(xi) Share capital
2017 2016
£’000 £’000
Authorised (in sterling):
85,000,000 – 9 per cent cumulative preference shares of £1 each (2016: 85,000,000) 85,000 85,000
50,000,000 – ordinary shares of 25p each (2016: 50,000,000) 12,500 12,500
97,500 97,500
$’000 $’000
Issued and fully paid (in US dollars):
72,000,000 – 9 per cent cumulative preference shares of £1 each (2016: 63,641,232) 116,516 105,414
40,509,529 – ordinary shares of 25p each (2016: 40,509,529) 17,013 17,013
132,500 – ordinary shares of 25p each held in treasury (2016: 132,500) (1,001) (1,001)
132,528 121,426
The preference shares entitle the holders thereof to payment, out of the profits of the company available for distribution and
resolved to be distributed, of a fixed cumulative preferential dividend of 9 per cent per annum on the nominal value of the
shares and to repayment, on a winding up of the company, of the amount paid up on the preference shares and any arrears of
the fixed dividend in priority to any distribution on the ordinary shares. Subject to the rights of the holders of preference shares,
holders of ordinary shares are entitled to share equally with each other in any dividend paid on the ordinary share capital and,
on a winding up of the company, in any surplus assets available for distribution among the members.
Changes in share capital:
•
On 16 October 2017 8,358,768 preference shares were issued, fully paid, by way of a placing at £1 per share to
qualified investors (total consideration £8,359,000 - $11,102,000). The middle market price at close of business on
9 October 2017 (being the date at which the terms of issue were fixed) was £1.045.
There have been no changes in ordinary shares held in treasury during the year.
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Company financial statements
Notes to the company financial statements (continued)
(xii) Movement in reserves
Share Exchange Profit
premium reserve and loss
account account
$’000 $’000 $’000
At 1 January 2016 30,683 (4,300) 42,334
Total comprehensive income – – 1,843
Dividends to preference shareholders – – (7,402)
Issue of ordinary shares (cash) 12,289 – –
Costs of issues (387) – –
At 31 December 2016 42,585 (4,300) 36,775
At 1 January 2017 42,585 (4,300) 36,775
Total comprehensive income – – (1,478)
Dividends to preference shareholders – – (7,777)
Costs of issues (184) – –
At 31 December 2017 42,401 (4,300) 27,520
As permitted by section 408 of the Companies Act 2006, a separate profit and loss account dealing with the results of the
company has not been presented. The loss before dividends recognised in the company’s profit and loss account for the year is
$1.5 million (2016: loss $2.2 million).
(xiii) Financial instruments and risks
Financial instruments
The company’s financial instruments comprise borrowings, cash and liquid resources and in addition certain debtors and trade
creditors that arise from its operations. The main purpose of these financial instruments is to raise finance for, and facilitate the
conduct of, the company’s operations. The hierarchy for determining and disclosing the fair value of financial instruments is set
out in note 23 to the consolidated financial statements. Loans from group undertakings are not included in the consolidated
financial statements but are considered to be level 3 in the hierarchy due to the lack of observable market data available. The
table below provides an analysis of the book and fair values of financial instruments excluding trade receivables and trade
payables at the balance sheet date.
2017 2017 2016 2016
Book value Fair value Book value Fair value
$’000 $’000 $’000 $’000
Cash and cash equivalents 724 724 614 614
US dollar notes - repayable 2017 – – (20,048) (20,206)
US dollar notes - repayable 2022 (23,649) (23,074) (23,646) (24,035)
Loan from REA Finance B.V. - repayable 2017 – – (13,765) (13,765)
Loan from REA Finance B.V. - repayable 2020 (43,433) (43,433) (38,944) (38,944)
Net debt (66,358) (65,783) (95,789) (96,336)
The fair value of the dollar notes reflects the last price at which transactions in those notes were effected prior to the balance
sheet dates.
Risks
The main risks arising from the company’s financial instruments are liquidity risk, interest rate risk, credit risk and foreign
currency risk. The board reviews and agrees policies for managing each of these risks. These policies have remained
unchanged since the beginning of the year. It is, and was throughout the year, the company’s policy that no trading in financial
instruments be undertaken.
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The company finances its operations through a mixture of share capital, retained profits, loans from a group undertaking,
borrowings in US dollars at fixed rates and credit from suppliers. At 31 December 2017, the company had outstanding
$24.0 million of 7.5 per cent dollar notes 2022 (2016: $24.0 million of 7.5 per cent dollar notes 2022 and $20.2 million of
7.5 per cent dollar notes 2017).
The policy for liquidity risk management is disclosed in note 23 to the consolidated financial statements together with the
contractual maturity of the company’s dollar notes.
Credit risk refers to the risk that a counterparty will default on its contractual obligations resulting in financial loss to the
company. The directors consider that the company is not exposed to any major concentrations of credit risk. At 31 December
2017, all bank deposits were held with banks with a Moody’s prime rating of P1. At the balance sheet date, no trade
receivables were past their due dates, nor were any impaired; accordingly no bad debt provisions were required. The maximum
credit risk exposures in respect of the company’s financial assets at 31 December 2017 and 31 December 2016 equal the
amounts reported under the corresponding balance sheet headings.
A limited degree of interest rate risk is accepted. A substantial proportion of the company’s financial instruments at
31 December 2017 carried interest at fixed rates rather than floating rates. On the basis of the company’s analysis, it is
estimated that a rise of one percentage point in interest rates applied to those financial instruments which carry interest at
floating rates would have resulted in an increase of $nil (2016: $nil) in the company’s interest revenues in its profit and loss
account.
Non-derivative financial instruments
The following table details the contractual maturity of the company’s non-derivative financial liabilities. The table has been
drawn up based on the undiscounted amounts of the company’s financial liabilities based on the earliest dates on which the
company can be required to discharge those liabilities. The table includes liabilities for both principal and interest.
Weighted Under Between Over 2 Total
average 1 year 1 and 2 years
interest rate years
2017 % $’000 $’000 $’000 $’000
US dollar notes - repayable 2022 8.5 1,803 1,803 28,542 32,148
Loan from REA Finance B.V. - repayable 2020 8.9 3,928 3,929 46,618 54,475
5,731 5,732 75,160 86,623
Weighted Under Between Over 2 Total
average 1 year 1 and 2 years
interest rate years
2016 % $’000 $’000 $’000 $’000
US dollar notes - repayable 2017 8.5 21,813 – – 21,813
US dollar notes - repayable 2022 8.5 901 1,803 30,344 33,048
Loan from REA Finance B.V. - repayable 2017 9.7 15,215 – – 15,215
Loan from REA Finance B.V. - repayable 2020 8.9 3,504 3,506 46,382 53,392
41,433 5,309 76,726 123,468
At 31 December 2016, the company’s non-derivative financial assets (other than receivables) comprised cash and deposits of
$724,000 (2016: $614,000) carrying a weighted average interest rate of nil per cent (2016: nil per cent) all having a maturity
of under one year and loans (including Indonesian stone and coal interests) of $41,791,000 (2016: $39,028,000).
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Company financial statements
Notes to the company financial statements (continued)
(xiv) Reconciliation of operating loss to operating cash flows
2017 2016
$’000 $’000
Operating loss 222 (225)
Amortisation of dollar note issue expenses 111 266
Operating cash inflows before movements in working capital 333 41
Decrease / (increase) in receivables 20,233 (1,599)
Increase in payables 2,037 3,474
Exchange translation differences (53) 103
Cash outflow from operations 22,550 2,019
Taxes paid (925) (982)
Interest paid (7,750) (7,962)
Net cash inflow / (outflow) from operating activities 13,875 (6,925)
(xv) Pensions
The company is the principal employer of the R.E.A. Pension Scheme (the “Scheme”) and a subsidiary company is a participating
employer. The Scheme is a multi-employer contributory defined benefit scheme with assets held in a trustee-administered fund,
which has participating employers outside the group. The Scheme is closed to new members.
As the Scheme is a multi-employer scheme, in which the employers are unable to identify their respective shares of the
underlying assets and liabilities (because there is no segregation of the assets), and does not prepare valuations on an IAS 19
basis, the company accounts for the Scheme as if it were a defined contribution scheme. The company’s share of the total
employer contribution is 5.4 per cent.
A non-IAS 19 valuation of the Scheme was last prepared, using the attained age method, as at 31 December 2014. This
method had been adopted in the previous valuation as at 31 December 2011 and in earlier valuations, as it was considered the
appropriate method of calculating future service benefits as the Scheme is closed to new members. At 31 December 2014 the
Scheme had an overall marginal surplus of assets, when measured against the Scheme’s technical provisions, of £202,000 -
$315,000. The technical provisions were calculated using assumptions of an investment return of 4.35 per cent pre-retirement
and 2.80 per cent post-retirement and annual increases in pensionable salaries of 3.2 per cent. The basis for the inflationary
revaluation of deferred pensions and increases to pensions in payment was changed from the Retail Prices Index (RPI) to the
Consumer Prices Index (CPI) with effect from 1 January 2011 in line with the statutory change, except that the change does
not apply to pension accrual from 1 January 2006, where the RPI still applies. The rates of increase in the RPI and the CPI
were assumed to be 3.2 per cent and 2.45 per cent respectively. It was further assumed that both non-retired and retired
members’ mortality would reflect S2PXA tables (light version) at 100 per cent and that non-retired members would take on
retirement the maximum cash sums permitted from 1 January 2015. Had the Scheme been valued at 31 December 2014
using the projected unit method and the same assumptions, the overall result would have been similar.
The Scheme has agreed a statement of funding principles with the principal employer and has also agreed a schedule of
contributions with participating employers covering normal contributions which are payable at a rate calculated to cover future
service benefits under the Scheme. A discretionary contribution of £28,000 - $34,000 (2016: nil) was required to fund an
inflation adjustment to pensions in payment relating to pre-1997 accrued entitlements which would not otherwise have been
subject to full indexation.
The Scheme had also agreed a recovery plan with participating employers which provided for recovery of the deficit shown by
the 31 December 2011 valuation through the payment of quarterly additional contributions over the period from 1 January
2013 to 30 September 2018. No contributions under that recovery plan were required in 2017 nor is any projected for 2018.
There are no agreed allocations of any surplus on either the wind-up of the Scheme or on any participant’s withdrawal from the
Scheme.
The next actuarial valuation will be made as at 31 December 2017. The valuation will not be available until the second half of
this year and is therefore not reflected in these financial statements.
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The company is responsible for contributions payable by other (non group) employers in the Scheme; such liability will only arise if
other (non group) employers do not pay their contributions. There is no expectation of this and, therefore, no provision has been
made.
(xvi) Related party transactions
2017 2016
Loans to subsidiaries $’000 $’000
PT Cipta Davia Mandiri 5,028 14,561
PT KCC Resources Indonesia 12,422 12,622
Makassar Investments Limited 14,216 14,216
REA Finance B.V. – 3,008
PT REA Kaltim Plantations 73,191 70,531
R.E.A. Services Limited 26,468 24,086
131,325 139,024
2017 2016
Dividends received from subsidiaries $’000 $’000
R.E.A. Services Limited – 4,028
– 4,028
2017 2016
Interest received from subsidiaries $’000 $’000
PT Cipta Davia Mandiri 683 417
REA Finance B.V. 265 283
PT REA Kaltim Plantations 5,887 6,612
6,835 7,312
Remuneration of key management personnel
The remuneration of the directors, who are the key management personnel of the group, is set out below in aggregate for each
of the categories specified in IAS 24 “Related party disclosures”. Further information about the remuneration of, and fees paid
in respect of services provided by, individual directors is provided in the audited part of the “Directors’ remuneration report”.
2017 2016
$’000 $’000
Short term benefits 1,364 1,405
Termination benefits 258 –
1,622 1,405
Other than the ex-gratia payment for loss of office made in 2017 there is no remuneration other than short term benefits.
Loan from related party
During the year, REA Trading Limited, a related party, made unsecured loans to the company on commercial terms. The maximum
amount was $7.4 million, all of which had been repaid by 31 December. This disclosure also complies with the requirements of
the Listing Rule 9.8.4.
(xvii) Rates of exchange
See note 39 to the consolidated financial statements.
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Company financial statements
Notes to the company financial statements (continued)
(xviii) Contingent liabilities and commitments
Sterling notes
The company has guaranteed the obligations for both principal and interest relating to the outstanding £31.9 million nominal
8.75 per cent guaranteed sterling notes 2020 issued by REA Finance B.V. The directors consider the risk of loss to the
company from these guarantees to be remote.
Bank borrowings
The company has given, in the ordinary course of business, guarantees in support of subsidiary company borrowings from, and
other contracts with, banks amounting in aggregate to $125 million (2016: $126 million). The directors consider the risk of
loss to the company from these guarantees to be remote.
Pension liability
The company’s contingent liability for pension contributions is disclosed in note (xv) above.
Operating leases
The company has an annual commitment under an operating lease of $226,000 (2016: $199,000). The commitment expires
after nine years (2016: after ten years). The lease does not contain any contingent rentals or an option to purchase the
property.
The future minimum lease payments under the operating lease are as follows:
2017 2016
$’000 $’000
Within one year 226 113
In the second to fifth year inclusive 906 797
After five years 906 996
2,038 1,906
(xix) Events after the reporting period
There have been no material post balance sheet events that would require disclosure or adjustment to these financial
statements.
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Notice of annual general meeting
This notice is important and requires your immediate attention. If
make market purchases (within the meaning of section 693(4)
you are in any doubt as to what action to take, you should
of the Companies Act 2006) of any of its ordinary shares on
consult your stockbroker, solicitor, accountant or other
such terms and in such manner as the directors may from time
appropriate independent professional adviser authorised under
to time determine provided that:
the Financial Services and Markets Act 2000 if you are resident
in the United Kingdom or, if you are not so resident, another
(a)
the maximum number of ordinary shares which may be
appropriately authorised independent adviser. If you have sold
purchased is 5,000,000 ordinary shares;
or otherwise transferred all your ordinary shares in R.E.A.
Holdings plc, please forward this document and the
(b)
the minimum price (exclusive of expenses, if any) that
accompanying form of proxy to the person through whom the
may be paid for each ordinary share is £1.00;
sale or transfer was effected, for transmission to the purchaser
or transferee.
(c)
the maximum price (exclusive of expenses, if any) that
may be paid for each ordinary share is an amount equal to
Notice is hereby given that the fifty-eighth annual general meeting of
the higher of: (i) 105 per cent of the average of the
R.E.A. Holdings plc will be held at the London office of Ashurst LLP at
middle market quotations for the ordinary shares in the
Broadwalk House, 5 Appold Street, London EC2A 2HA on 13 June
capital of the company as derived from the Daily Official
2018 at 10.00 am to consider and, if thought fit, to pass the following
List of the London Stock Exchange for the five business
resolutions. Resolutions 12 and 13 will be proposed as special
days immediately preceding the day on which such share
resolutions, all other resolutions will be proposed as ordinary
is contracted to be purchased and (ii) the higher of the
resolutions.
last independent trade and the current highest
independent bid on the London Stock Exchange; and
1.
To receive the company’s annual accounts for the financial year
ended 31 December 2017, together with the accompanying
(d)
unless previously renewed, revoked or varied, this
statements and reports including the auditor’s report.
authority shall expire at the conclusion of the annual
2.
To approve the directors’ remuneration report for the financial
year ended 31 December 2017.
3.
To approve the directors’ remuneration policy to take effect
general meeting of the company to be held in 2019 (or, if
earlier, on 30 June 2019)
provided further that:
immediately following the Annual General Meeting.
(i)
notwithstanding the provisions of paragraph (a) above, the
maximum number of ordinary shares that may be bought
4.
To re-elect as a director David Blackett, who having been a non-
back and held in treasury at any one time is 400,000
executive director for more than nine years, retires as required by
ordinary shares; and
the UK Corporate Governance Code and submits himself for
re-election.
(ii)
notwithstanding the provisions of paragraph (d) above, the
company may, before this authority expires, make a
5.
To re-elect as a director John Oakley, who, having become a
contract to purchase ordinary shares that would or might
non-executive director at the beginning of 2016 and having
be executed wholly or partly after the expiry of this
served for more than nine years as a director, retires as required
authority, and may make purchases of ordinary shares
by the UK Corporate Governance Code and submits himself for
pursuant to it as if this authority had not expired.
re-election.
6.
To re-elect as a director Richard Robinow, who, having been a
unconditionally authorised for the purposes of section 551 of
non-executive director for more than nine years, retires as
the Companies Act 2006 (the “Act”) to exercise all the powers of
required by the UK Corporate Governance Code and submits
the company to allot, and to grant rights to subscribe for or to
10.
That the directors be and are hereby generally and
himself for re-election.
convert any security into, shares in the capital of the company
(other than 9 per cent cumulative preference shares) up to an
7.
To re-appoint Deloitte LLP, chartered accountants, as auditor of
aggregate nominal amount (within the meaning of sub-sections
the company to hold office until the conclusion of the next
(3) and (6) of section 551 of the Act) of £2,372,617; such
annual general meeting of the company at which accounts are
authorisation to expire at the conclusion of the next annual
laid before the meeting.
general meeting of the company (or, if earlier, on 30 June 2019),
save that the company may before such expiry make any offer or
8.
9.
To authorise the directors to fix the remuneration of the auditor.
agreement which would or might require shares to be allotted, or
rights to be granted, after such expiry and the directors may allot
That the company is generally and unconditionally authorised for
shares, or grant rights to subscribe for or to convert any security
the purposes of section 701 of the Companies Act 2006 to
into shares, in pursuance of any such offer or agreement as if
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the authorisations conferred hereby had not expired.
11.
That the directors be and are hereby generally and
(ii)
otherwise than as specified at paragraph (i) of this
unconditionally authorised for the purposes of section 551 of
resolution, to the allotment of equity securities and the
the Companies Act 2006 (the “Act”) to exercise all the powers of
sale of treasury shares up to an aggregate nominal
the company to allot, and to grant rights to subscribe for or to
convert any security into, 9 per cent cumulative preference
shares in the capital of the company (“preference shares”) up to
amount (calculated, in the case of the grant of rights to
subscribe for, or convert any security into, shares in the
capital of the company, in accordance with sub-section
an aggregate nominal amount (within the meaning of sub-
(6) of section 551 of the Act) of £1,009,425
sections (3) and (6) of section 551 of the Act) of £13,000,000,
such authorisation to expire at the conclusion of the next annual
and shall expire at the conclusion of the next annual general
general meeting of the company (or, if earlier, on 30 June 2019),
meeting of the company (or, if earlier, on 30 June 2019), save
save that the company may before such expiry make any offer or
that the company may before such expiry make any offer or
agreement which would or might require preference shares to be
agreement which would or might require equity securities to be
allotted or rights to be granted, after such expiry and the
directors may allot preference shares, or grant rights to
allotted, or treasury shares to be sold, after such expiry and the
directors may allot equity securities or sell treasury shares, in
subscribe for or to convert any security into preference shares, in
pursuance of any such offer or agreement as if the power
pursuance of any such offer or agreement as if the
authorisations conferred hereby had not expired.
conferred hereby had not expired.
13.
That a general meeting of the company other than an annual
12.
That the directors be and are hereby given power:
general meeting may be called on not less than 14 clear days’
notice.
(a)
for the purposes of section 570 of the Companies Act
2006 (the “Act”) and subject to the passing of resolution
10 set out in the notice of the 2018 annual general
meeting, to allot equity securities (as defined in sub-
By order of the board
R.E.A. SERVICES LIMITED
section (1) of section 560 of the Act) of the company for
cash pursuant to the authorisation conferred by the said
Secretary
26 April 2018
resolution 10; and
Registered office:
First Floor
32 – 36 Great Portland Street
London W1W 8QX
Registered in England and Wales no: 00671099
(b)
for the purposes of section 573 of the Act, to sell ordinary
shares (as defined in sub-section (1) of section 560 of
the Act) in the capital of the company held by the
company as treasury shares for cash.
as if section 561 of the Act did not apply to the allotment or sale,
provided that such powers shall be limited:
(i)
to the allotment of equity securities for cash in connection
with a rights issue or open offer in favour of holders of
ordinary shares and to the sale of treasury shares by way
of an invitation made by way of rights to holders of
ordinary shares, in each case in proportion (as nearly as
practicable) to the respective numbers of ordinary shares
held by them on the record date for participation in the
rights issue, open offer or invitation (and holders of any
other class of equity securities entitled to participate
therein or, if the directors consider it necessary, as
permitted by the rights of those securities) but subject in
each case to such exclusions or other arrangements as
the directors may consider necessary or appropriate to
deal with fractional entitlements, treasury shares (other
than treasury shares being sold), record dates or legal,
regulatory or practical difficulties which may arise under
the laws of any territory or the requirements of any
regulatory body or stock exchange in any territory
whatsoever; and
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Notice of annual general meeting
continued
Notes
In order for a proxy appointment or instruction regarding a proxy
appointment made or given using the CREST service to be valid, the
The sections of the accompanying Directors’ report entitled
appropriate CREST message (a “CREST proxy instruction”) must be
“Directors”, “Acquisition of the company’s own shares”,
properly authenticated in accordance with the specifications of
“Authorities to allot share capital”, “Authority to disapply pre-
Euroclear UK and Ireland Limited (“Euroclear”) and must contain the
emption rights”, “General meeting notice period” and
“Recommendation” contain information regarding, and
required information as described in the CREST Manual (available via
www.euroclear.com/CREST). The CREST proxy instruction, regardless
recommendations by the board of the company as to voting on,
of whether it constitutes a proxy appointment or an instruction to
resolutions 4 to 6 and 9 to 13 set out above in this notice of the
amend a previous proxy appointment, must, in order to be valid be
2018 annual general meeting of the company (the “2018 Notice”).
transmitted so as to be received by the company’s registrars (ID: RA10)
by 10.00 am on 11 June 2018. For this purpose, the time of receipt
The company specifies that in order to have the right to attend and vote
will be taken to be the time (as determined by the time stamp applied to
at the annual general meeting (and also for the purpose of determining
the message by the CREST applications host) from which the
how many votes a person entitled to attend and vote may cast), a
company’s registrars are able to retrieve the message by enquiry to
person must be entered on the register of members of the company at
CREST in the manner prescribed by CREST. The company may treat
close of business on 11 June 2018 or, in the event of any adjournment,
as invalid a CREST proxy instruction in the circumstances set out in
at close of business on the date which is two days before the day of the
Regulation 35(5) (a) of the Uncertificated Securities Regulations 2001.
adjourned meeting. Changes to entries on the register of members
after this time shall be disregarded in determining the rights of any
CREST members and, where applicable, their CREST sponsors or
person to attend or vote at the meeting.
voting service provider(s) should note that Euroclear does not make
available special procedures in CREST for particular messages. Normal
Only holders of ordinary shares are entitled to attend and vote at the
system timings and limitations will therefore apply in relation to the
annual general meeting. A holder of ordinary shares may appoint
input of CREST proxy instructions. It is the responsibility of the CREST
another person as that holder’s proxy to exercise all or any of the
member concerned to take (or, if the CREST member is a CREST
holder’s rights to attend, speak and vote at the annual general meeting.
A holder of ordinary shares may appoint more than one proxy in relation
personal member or sponsored member or has appointed (a) voting
service provider(s), to procure that such member’s CREST sponsor or
to the meeting provided that each proxy is appointed to exercise the
voting service provider(s) take(s)) such action as shall be necessary to
rights attached to (a) different share(s) held by the holder. A proxy
ensure that a message is transmitted by means of the CREST system
need not be a member of the company. A form of proxy for the meeting
by any particular time. In this connection, CREST members and, where
accompanies this notice. To be valid, forms of proxy and other written
applicable, their CREST sponsors or voting service provider(s) are
instruments appointing a proxy must be received by post or by hand
referred, in particular, to those sections of the CREST Manual
(during normal business hours only) by the company’s registrars, Link
concerning practical limitations of the CREST system and timings.
Asset Services, PXS, 34 Beckenham Road, Beckenham BR3 4TU by
no later than 10.00 am on 11 June 2018.
The rights of members in relation to the appointment of proxies
described above do not apply to persons nominated under section 146
Alternatively, appointment of a proxy may be submitted electronically by
of the Companies Act 2006 to enjoy information rights (“nominated
using either Link’s share portal at www.signalshares.com (and so that
persons”) but a nominated person may have a right, under an
the appointment is received by the service by no later than 10.00 am on
agreement with the member by whom such person was nominated, to
11 June 2018) or the CREST electronic proxy appointment service as
be appointed (or to have someone else appointed) as a proxy for the
described below. Shareholders who have not already registered for
annual general meeting. If a nominated person has no such right or
Link’s share portal may do so by registering as a new user at
does not wish to exercise it, such person may have a right, under such
www.signalshares.com and giving the investor code shown on the
an agreement, to give instructions to the member as to the exercise of
accompanying proxy form (as also shown on their share certificate).
voting rights.
Completion of a form of proxy, or other written instrument appointing a
proxy, or any appointment of a proxy submitted electronically, will not
Any corporation which is a member can appoint one or more corporate
preclude a holder of ordinary shares from attending and voting in
representatives who may exercise on its behalf all of its powers as a
person at the annual general meeting if such holder wishes to do so.
member provided that they do not do so in relation to the same shares.
CREST members may register the appointment of a proxy or proxies for
Any member attending the annual general meeting has the right to ask
the annual general meeting and any adjournment(s) thereof through
questions. The company must cause to be answered any such question
the CREST electronic proxy appointment service by using the
procedures described in the CREST Manual (available via
relating to the business being dealt with at the meeting but no such
answer need be given if (a) to do so would interfere unduly with the
www.euroclear.com/CREST) subject to the company’s articles of
preparation for the meeting or involve the disclosure of confidential
association. CREST personal members or other CREST sponsored
information, (b) the answer has already been given on a website in the
members, and those CREST members who have appointed (a) voting
form of an answer to a question, or (c) it is undesirable in the interests
service provider(s), should refer to their CREST sponsor or voting
of the company or the good order of the meeting that the question be
service provider(s), who will be able to take the appropriate action on
answered.
their behalf.
126
R.E.A. Holdings plc Annual Report and Accounts 2017
249315 REA Holdings p68-end.qxp 27/04/2018 13:03 Page 127
Copies of the executive director’s service agreement and letters setting
reason of inconsistency with any enactment or the company’s
out the terms and conditions of appointment of non-executive directors
constitution or otherwise), (b) it is defamatory of any person, or (c) it is
are available for inspection at the company's registered office during
frivolous or vexatious. Such a request may be in hard copy form or
normal business hours from the date of this 2018 Notice until the close
electronic form, must identify the resolution of which notice is to be
of the annual general meeting (Saturdays, Sundays and public holidays
given or the matter to be included in the business, must be authorised
excepted) and will be available for inspection at the place of the annual
by the person or persons making it, must be received by the company
general meeting for at least 15 minutes prior to and during the meeting.
not later than the date 6 clear weeks before the meeting, and (in the
A copy of this 2018 Notice, and other information required by section
accompanied by a statement setting out the grounds for the request.
case of a matter to be included in the business only) must be
311A of the Companies Act 2006, may be found on the company's
website www.rea.co.uk.
Under section 527 of the Companies Act 2006, members meeting the
threshold requirements set out in that section have the right to require
the company to publish on a website (in accordance with section 528
of the Companies Act 2006) a statement setting out any matter that
the members propose to raise at the relevant annual general meeting
relating to (i) the audit of the company's annual accounts that are to be
laid before the annual general meeting (including the auditor’s report
and the conduct of the audit); or (ii) any circumstance connected with
an auditor of the company having ceased to hold office since the last
annual general meeting of the company. The company may not require
the members requesting any such website publication to pay its
expenses in complying with section 527 or section 528 of the
Companies Act 2006. Where the company is required to place a
statement on a website under section 527 of the Companies Act 2006,
it must forward the statement to the company's auditor by not later than
the time when it makes the statement available on the website. The
business which may be dealt with at the annual general meeting
includes any statement that the company has been required under
section 527 of the Companies Act 2006 to publish on a website.
As at the date of this 2018 Notice, the issued share capital of the
company comprises 40,509,529 ordinary shares, of which 132,500 are
held as treasury shares, and 72,000,000 9 per cent cumulative
preference shares. Only holders of ordinary shares (and their proxies)
are entitled to attend and vote at the annual general meeting.
Accordingly, the voting rights attaching to shares of the company
exercisable in respect of each of the resolutions to be proposed at the
annual general meeting total 40,377,029 as at the date of this 2018
Notice.
Shareholders may not use any electronic address (within the meaning
of sub-section 4 of section 333 of the Companies Act 2006) provided
in this 2018 Notice (or any other related document including the form
of proxy) to communicate with the company for any purposes other
than those expressly stated.
Under section 338 and section 338A of the Companies Act 2006,
members meeting the threshold requirements in those sections have
the right to require the company (i) to give, to members of the company
entitled to receive notice of the annual general meeting, notice of a
resolution which may properly be moved and is intended to be moved at
the meeting and/or (ii) to include in the business to be dealt with at the
meeting any matter (other than a proposed resolution) which may be
properly included in the business. A resolution may properly be moved
or a matter may properly be included in the business unless (a) (in the
case of a resolution only) it would, if passed, be ineffective (whether by
R.E.A. Holdings plc Annual Report and Accounts 2017
127
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249315 REA Holdings Cover Spreads.qxp 27/04/2018 12:55 Page 2
R.E.A. Holdings plc (“REA”) is a UK company of which
the shares are admitted to the Official List and to
trading on the main market of the London Stock
Exchange.
The REA group is principally engaged in the cultivation
of oil palms in the province of East Kalimantan in
Indonesia and in the production and sale of crude palm
oil and crude palm kernel oil.
Sterilising cages
Steam turbine
This report has been managed by Perivan Financial Limited. (249315)
Using an environmental management system that complies with ISO 14001. With the internationally
recognised ISO 14001 certification since 2007 and are also FSC certified.
The report was produced on a press using the very latest LED UV drying technology with UV inks that
consume less energy in the printing process, eliminating the need for traditional drying systems, and are free
from volatile organic compounds (VOC’s). Approximately 99 per cent of any waste associated with this
production will be recycled.
The report is printed on Galerie satin paper which is manufactured at an EMAS accredited mill and is FSC
accredited, meaning that it is sourced from managed forests.
The booklet is a certified CarbonNeutral® publication. All emissions associated with the manufacture of the
paper, printing and finishing processes have been offset to net zero. Through Natural Capital Partners,
offsetting these emissions by supporting global emission reduction projects that support low carbon
sustainable development.
249315 REA Holdings Cover Spreads.qxp 27/04/2018 12:55 Page 1
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Annual Report and Accounts
2017
R.E.A. Holdings plc
First Floor
32-36 Great Portland Street
London
W1W 8QX
www.rea.co.uk
Registered number
00671099 (England and Wales)